Appex Inc. manufactures and sells a single product. The selling price and the variable production cost per unit is as follows: Selling price Direct materials Direct Labour Manufacturing overhead $36.00 $7.00 $5.50 $2.00 Fixed manufacturing costs are expected to be $1,340,000 for each period. The details of which is provided below: Production Department 2 $465,000 Service Department $265,000 General Factory $230,000 $380,000 General Factory costs represent facilities costs such as lighting and heating. The area occupied by the respective departments are as follows: 40% Production department 1 Production department 2 Service department 50% 10% 60 per cent of service department costs are labour related and the remaining 40 per cent machine related. Normal production department activity is: Department 1 Department 2 Direct Labour Hours Machine Hours Production Units 80,000 2,400 120,000 100,000 2,400 120,000 Fixed manufacturing overheads are absorbed at a predetermined rate per unit of production for each production department, based upon normal level of activity. Fixed non-manufacturing costs are expected to be $875,000. Production and sales were 116,000 and 114,000 units respectively for the period. Required: (a) Prepare an income statement for the period using absorption costing. Except for fixed manufacturing costs which exceeded by $20,000 in Production Department 1, all other costs were incurred as per expectation. (14 marks) (b) Prepare an income statement for the period using marginal costing principles instead. (5 marks) (c) Compare and contrast the general effect on income of using absorption and marginal costing systems respectively. (Use the figures calculated in (a) and (b) above to illustrate your answer.) (6 marks)