Namiko Leather Company produces purse and wallet. The data given below relating to the past year:

Purse Wallet

Production (unit) 100,000 200,000

Sales (unit) 90,000 210,000

Selling price RM5.50 RM4.50

Direct labor hours 50,000 80,000

Manufacturing cost:

Direct materials RM75,000 RM100,000

Direct labor RM250,000 RM400,000

Variable OH RM20,000 RM24,000

Fixed OH:

Direct RM50,000 RM40,000

Common RM20,000 RM20,000

Non-manufacturing cost:

Variable selling RM30,000 RM60,000

Direct fixed selling RM35,000 RM40,000

Common fixed selling RM25,000 RM25,000

Budgeted fixed OH for the year RM130,000, is the same as the actual fixed overhead. Fixed OH is assigned

to products using a plant-wide rate based on expected direct labor hours, which were 130,000 hours. The

company had 10,000 wallets in inventory at the beginning of the year. These wallets had the same unit cost as

the wallets produced during the year.

Required:

(a) Compute the unit cost for the purse and wallet using absorption costing.

In addition, prepare an income statement using absorption and marginal costing approach for both

products. (14 marks)

(b) Explain the differences between variable and absorption costing approach. (