Barney and Sisters Limited has launched a new soft toys: Baby Hop. The companys computerized cost accounting system has produced the following information relates to the production of Baby Hop for the first three months of the products life:

Selling price 180.00 January Sales(unit)5,800 Production(unit) 7,000

Direct material 55.00 February 6,500 8,000 Direct labour 45.00 March 7,800 8,500

Variable production overhead 10.00 Variable sales & marketing overhead 8.00

Additional information is as follows: a. Budgeted fixed production overhead was RM500,000.00 per annum. b. Actual fixed production overhead for the period was RM45,000.00 per month. c. Sales and marketing overhead of RM35,000.00 per month and administration overhead of RM20,150.00 per month were in line with the budget for that period. d. All fixed overhead costs are budgeted on the basis of a projected volume of 80,000 units per year and all costs are expected to be incurred at a constant rate throughout the year.

Required: i. On the assumption that Barney and Sisters Limited operates an absorption costing system, calculate the (under)/over absorbed fixed production overhead for each month.

ii. Prepare an income statement for each month using absorption costing and marginal costing approach.

iii. Explain why the net profit figures are different under absorption and marginal costing. Support your answer with a profit reconciliation statement