Net Income Incomes are the same under both the costing methods, for production is equivalent to sales (1,50,000 units). Differences in net income arise only when production varies from sales, Income Statements under Variable and Absorption Costing Systems, Assuming Production and Sales: (a) 1,40,000 units, (b) 1,60,000 units: Particulars (a) 1,40,000 units (b) 1,60,000 units Absorption Variable Absorption Variable Sales revenue @ $20 per unit 528,00,000 28,00,000 32,00,000 32,00,000 Less production costs: Variable costs @ 14 per unit 19,60,000 19,60,000 22,40,000 22,40,000 Fixed overheads @ 2 per unit 2,80,000 3.20,000 Cost of goods produced and sold 22,40,000 19.60,000 25,60,000 22.40,000 Gross margin (adjusted/Contribution 5.60.000 8,40,000 6,40,000 9,60,000 Less capacity variance: Unfavourable and add capacity variance favourable @ 52 per unit (10,000 units) (20,000) 20,000 Gross margin (adjusted)/Contribution 5,40,000 8,40,000 6,60,000 9,60,000 Less non-production costs: Fixed manufacturing costs 3,00,000 3,00,000 5,40,000 5.40,000 6,60,000 6,60,000 Net incomes again are the same under both costing systems, as production is equal sales in both situations. The fact whether production is equal to normal capacity or not, does not have any impact whatsoever on the net income. Here, production of 1,40,000 units as well as 1,60,000 units is different from 1,50,000, the normal level of production P.15.4 The Seers Can Company Ltd has two plants, one in Mumbai, and the other in Kolkata. The physi- cal characteristics of the plants are similar and the results of the operations of both plants are compared each month in order to judge the performance of the two managements. The April income statements of the two plants were as follows: Particulars Mumbal plant Kolkata plant Sales *18,00,000 $18.00,000 Less: Manufacturing cost of sales 12,60,000 13,60,000 Selling and administrative expenses 4,40,000 4.40,000 Net income 1.00,000 Each plant sells its product for the same price. During the month of April, each plant sold and shipped 3,00,000 cans. The production for the month at the two plants was as follows: Particulars Mumbal plant Kolkata plant Opening stock (number of cans) 1,00,000 1,00,000 Production during the month 4,00,00,000 3,00,00,000 4,01,00,000 3,01,00,000 Cans shipped during the month 3,00,00,000 3.00,00,000 Closing stock 1,01,00,000 1,00,000 The Mumbai plant built up its stock in April in anticipation of the canning season, which begins in May on the West Coast. The East Coast canning season begins in the middle of June. The standard cost sheet for the type of can sold in April discloses the following information for both plants: j38 Direct material Direct labour Variable overheads Fixed overheads Cost per 1.000 cans 25 5 2 10 42 For each plant, the manufacturing fixed costs budgeted for the month were 4,00,000. There were no spending or efficiency variances. All selling and administrative expenses were of a fixed nature. Prepare revised income statements for the two plants, using variable costing. Explain the difference in income between the two plants