Byrd Company manufactures a single product. The following simplified data are related to its two years of

operations:

Particulars Year 1 Year 2

Units sold @ Rs. 20 40,000 30,000

Standard variable cost of production per unit (Rs.) 8 8

Fixed Factory overhead cost (Rs.) 2,00,000 2,00,000

Selling & Distribution Expenses (assumed to be fixed) (Rs.) 1,40,000 1,40,000

Standard Fixed factory overheads per unit (Rs.) 5 5

Units produced 30,000 50,000

Opening finished goods Inventory-Units 10,000 -

Required:

a) Prepare income statements based on:

i. Absorption costing and

ii. Variable costing for each year

b) Give reasons for the difference in the answer.