Mary commenced business in January 2019, manufacturing a single product. At the end of 2019 she calculated her profit using the absorption costing method and was pleased with the profits that were realised. However, she recently read that preparation of the income statement according to the marginal costing method would be more beneficial to her. She also learnt that if there are opening or closing inventories, then the profits calculated using the two methods would be different.
She forecasted her sales and costs for July to December 2021 and wanted to undertake cost-volume-profit (CVP) analysis since it made use of the marginal costing approach with which she was impressed.
QUESTION 1
(20 Marks)
REQUIRED
Prepare the Income Statement of Mary’s Manufacturers the year ended 31 December 2020 using the:
1.1
Marginal costing method.
(10 Marks)
1.2
Absorption costing method.
(10 Marks)
INFORMATION

The following information was extracted from the accounting records of Mary’s Manufacturers for the years ended 31 December 2020 and 31 December 2019:
                                             31 December 2020       31 December 2019
                                                       Units       R                        Units            R
Sales for the year                        3 500     ?                         3 700      666 000
Selling price per unit                                200                                        180
Production for the year             4 100                              4 000
Finished goods at 

beginning of year                           ?                                    Nil
Variable manufacturing 

costs per unit                                             50                                         45
Variable selling and 

administrative costs per unit                 25                                          24
Fixed manufacturing 

costs per year                                          45 100                                 36 000
Fixed selling and administrative 

costs per year                                           24 000                                25 000

Additional information
1. Mary’s Manufacturers uses the FIFO method for the valuation of inventory.
2. The increase in the fixed manufacturing costs is due to a new rental agreement in respect of the factory.