7.31 Porter Ltd began operations on 1 January and achieved the following results for

the year:

Sales

36 000 units

Selling price

$45 per unit

Manufacturing costs:

Direct material

$12 per unit

Direct labour

$6 per unit

Variable overhead

$9 per unit

Fixed manufacturing overhead

$300 000

Selling and administrative costs:

Variable

$3 per unit sold

Fixed

$30 000

Production

37 500 units

Required:

1. Prepare an absorption costing income statement for Porter Ltd.
2. Prepare a variable costing contribution margin statement for Porter Ltd.
3. Reconcile the differences between the profits under the two statements by:

(a)identifying the areas where the statements differ

(b)using the short-cut method.