Gopi and Rashi started a new business manufacturing cooker. They both kept separate set of accounts of their business. However, at the end of the first year of operations their net incomes didnt match. A fight was about to start between the two owing to discrepancy in net incomes. Kokila, their friend, asked them to present their income statements. As such information relating to the businesss the first year of operation follow:

Production in units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26000

Sales in units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21000

Variable manufacturing cost per unit produced. . . . . . . . . . . . . $9

Variable selling and administrative expense per unit sold. . . . . $3

Fixed manufacturing overhead costs (total) . . . . . . . . . . . . . . . $324300

Using the above data, Rashi presented the following income statement:

Sales (21000 units) . . . . . . . . . . . . . . . . . . . . . . . . . . $840000

Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . $450934.61538461543

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $389065.38461538457

Selling and administrative expenses . . . . . . . . . . . . $251200

Net operating income. . . . . . . . . . . . . . . . . . . . . . . . . $137865.38461538457

Gopi, on the other hand, asked for your help to prepare a variable costing income statement. Prepare a variable costing income statement of Gopi and Rashi (5 marks) and explain why the net income between the two methods differs (2 marks).