Marginal and Absorption Costing

Suppose you are a financial advisor of the corporation "XXX". You received a task to estimate the profit of the company by using two approaches marginal costing and absorption costing.

The corporation XXX produces two products: earphone and computer gaming mouse. The detailed information on these products are given in the table below.

Per unit cost	Earphone, $	Gaming mouse, $
Selling price	50	20
Direct materials	9	5
Direct labour	4	3
Variable overheads	2	1

Annual fixed production overheads are budgeted (projected) to be $600 000 for earphone production and $400 000 for gaming mouse production. The managers of the corporation expect to produce 500 000 units of earphones and 1 million gaming mice each year. Overheads are absorbed on a per unit basis. Actual overheads are $800 000 and $700 000 for the earphone and gaming mouse respectively for the year.

Budgeted fixed costs per quarter are $140 000 and $120 000 for the production of earphone and gaming mouse respectively.

Actual sales and production units for the first quarter are given below.

	January - March
	earphone	Gaming mouse
Sales	120 000	80 000
Production	140 000	80 000

In addition, there is no opening inventory for both products at the beginning of January.

Make income statements of the corporation for the first quarter using:

1. Marginal costing
2. Absorption costing