Management

Question 2 20 points Sessom Ply Lid produces feeders for distribution to retail stores The entity uses absorption costing system for internal purposes but is considering using variable costing. Data for the company's planned & actual operations for 2022 are as follows Beginning finished goods inventory in units 30,000 Planned activity Actual activity Sales in units 140,000 125,000 Manufacturing in units 140,000 130,000 The planned per unit cost figures below were based on the manufacturing and sales of 140,000 units, Sessom uses an estimated manufacturing overhead rate for allocating manufacturing overhead to its product. Thus, a combined rate of $9 per unit was employed for absorption costing purposes in 2022 Any over - or under applied manufacturing overhead is closed to cost of goods sold at the end of the year Planned costs Incurred costs Per unit Total Direct materials $24 $3 360 000 $3, 120,000 Direct Labour 2,620,000 2.340,000 Variable manufacturing 560,000 520,000 overhead Fixed manufacturing overhead 700,000 710,000 Variable selling expenses 14 1.960,000 1,750,000 Fixed selling expenses 980,000 980,000 Variable administrative 140,000 125,000 expenses Fixed administrative expenses 6 840,000 850,000 Total $79 $11,060,000 $10,395,000 The beginning inventory for 2022 for absorption costing purposes was valued at the 2021 planned manufacturing cost, which was the same as 2022 planned unit manufacturing cost. No work in process inventories were recorded either at the beginning or end of 2022. The planned and actual selling price was $99 per unit for 2022. Required: a. Prepare an Income -Expenditure statement using absorption costing method (5 marks) b. Prepare an Income -Expenditure statement using variable costing method. (5 marks) c. Compute the cost of ending inventory under both methods (4 marks) d. What is the amount of difference in income using absorption costing versus variable costing? How did it arise? (6 marks)