Company X makes pencils. According to budgetary costs for 2020 , the managers came to the conclusion that the accounting results based on variable costing was 0 when the company sells 10000 penculs. Sales price is 10 per unit and average variable cost of production is 3. Furthermore the company is burdened with 1 per unit sales commissions and the variable costs of management are 0,5 (50 cents) per unit of product. Budgeted cost of selling of products is 6000 and the budgeted fixed costs of management is 15000. At the end of 2020 the level of production was 15000 and there were sold 12000 units. Also in 2020, there were no initial inventories of products and unfinished products , also there were no final unfinished products inventories. Budgeted fixed cost of production is made only from general industrial cost and the budgeted volume of production for 2020 was 20000 units.

1 Create the income statement for 2020 using absorbing costing ( if there are imputation differences put it in the cost of sales) and variable costing.

2. Explain why there are differences in the income statement when using those two techniques.