AGA company manufactures and sells a product for R$30$ per Kg$.$ However due to the current

economic climate the company has decided to reduce the selling price to R$20$ per Kg$.$ They

would now like to analyse their position based on this price.

The data for the year $2023$ is given below:

$$ Sales in kgs: $75,000$ kgs

$$ Finished goods inventory at the beginning of the period: $12,000$ kgs

$$ Finished goods inventory at the closing of the period: $17,000$ kgs

Costs:

$$ Materials $$ R$2$ of raw material and R$2$ of liquid per Kg

$$ Labour $0,5$ hours per Kg$.$ Labour rates are R$4$ per hour.

$$ Variable manufacturing overheads $$ R$2$ per Kg

$$ Fixed manufacturing overhead cost: R$320,000$ per year

$$ Variable marketing and administrative expenses: R$2$ per Kg of sale

$$ Fixed expenses: R$300,000$ per year

Required:

A$.$ Income statement using absorption and variable costing methods. $(20$ marks$)$

B$.$ Reconcile and explain the difference in net operating income under the two concepts.

$(5$ marks$)$

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