Ericsson AB manufactures and sells a single product. The following data cover the two latest years of operations: 

The denominator level is 30,000 output units per year. Ericsson’s accounting records produce variable-costing information and year-end adjustments are made to produce external reports showing absorption-costing information. All variances are charged to cost of goods sold. 

Required

1. Prepare two income statements for 2019, one under variable costing and one under absorption costing.

2. Explain briefly why the operating profit figures calculated in requirement 1 agree or do not agree. 

3. Give two advantages and two disadvantages of using variable costing for internal reporting.

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2018 2019 Unit data Sales 25 000 25 000 1 000 5 000 Opening stock Closing stock Selling price per unit Cost data 1 000 1 000 SEK 40 SEK 40 Standard fixed costs SEK 120 000 SEK 190 000 Manufacturing overhead Marketing and administrative Standard variable costs per unit: Direct materials SEK 120 000 SEK 190 000 SEK 10.50 Direct manufacturing labour Manufacturing overhead Marketing and administrative SEK 9.50 SEK 4.00 SEK 1.20