Office Products Ltd. began operations in 2018 as a manufacturer of calculators. It uses an actual costing system. Calculators sell for $15 each.

For 2018, the company budgeted fixed manufacturing overhead of $295,000 and fixed selling and administrative costs of $134,000.

The year has now ended and the following actual results have been reported:

Sales were 62,000 units and production was 76,000 units

Variable direct labour and variable direct material totaled $444,000.

Fixed manufacturing overhead was exactly equal to the budget.

Fixed selling and administrative costs were $117,000.

REQUIRED:

a)Prepare an income statement for 2018 using variable costing. (5 Marks)

b)Prepare an income statement for 2018 using absorption costing. (5 Marks)

a)What is the main performance issue concerning the use of absorption costing as an evaluation measurement for managers?What are atleast two possible solutions to overcome the issue? (4 Marks)