AGA company manufactures and sells a product for R30 per Kg. However due to the current economic climate the company has decided to reduce the selling price to R20 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 R2 of raw material and R2 of liquid per Kg

Labour 0,5 hours per Kg. Labour rates are R4 per hour

Variable manufacturing overheads R2 per Kg

Fixed manufacturing overhead cost: R320,000 per year

Variable marketing and administrative expenses: R2 per Kg of sale

Fixed expenses: R300,000 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) Show all workings.