Elegant Hijabista Sdn Bhd (EHSB) started its business on 1st January 2018, producing shawl and turban for stylish Muslim women. Madam Yana, the Managing Director, is interested to use variable costing in preparing its Income Statement, as this method gives more reliable information for decision making compared to absorption costing. Madam Yana has asked you to help her in producing the Income Statement.

Stated below is the financial information related to EHSB during its first year, for the year ended 31st December 2018.

Shawl Turban

Production (unit) 5,000 2,000

Sales (unit) 4,600 1,200

Selling price per unit RM35 RM55

Manufacturing Cost:

Direct materials 25,000 14,000

Direct labour 15,000 10,000

Nonmanufacturing cost:

Variable selling 23,000 8,400

Fixed selling and administrative expense 8,000 6,000

Additional information:

Total manufacturing overhead for the year is RM90,000. Variable overheads are RM8 and RM10 per unit for shawl and turban respectively. The remaining balance is categorised as fixed overhead, divided at the ratio of 1:2 between shawl and turban.

REQUIRED:

(a) Compute the unit cost of shawl and turban using variable costing.

(b) Compute the unit cost of shawl and turban using absorption costing.

(c) Prepare Income Statement for EHSB for the year ended 31st December 2018 using variable costing.

(d) Advice Madam Yana:

(i) ONE (1) reason of preparing Income Statement using absorption costing.

(ii) TWO (2) reasons of preparing Income Statement using variable costing.