Ouestion $3(25$ marks$)$

The following budgeted data relates to ALT Ltd$.$ for the period ending December $31,2020.$

Production $($units$)44,000$

Sales $($units$)52,000$

Opening stock $($units$)20,000$

The company incurred material, labour and production and selling overheads per unit as follows:

Direct material $$200$ Variable production overheads

Direct labour $$320$ Variable selling and distribution

The annual fixed production overheads are budgeted to be $$800,000$ and the company expects to produce $40,000$ units of aprons each year. Overheads are absorbed on a per unit basis. Actual overheads are $$860,000$ per year. Actual fixed administration cost is $$450,000$ per year. The selling price per unit is $$900.$

Required:

$($a$)$ Prepare the marginal costing and the absorption costing income statements clearly showing the difference in treatment of stock for the period ending December $31,2020.(17$ marks$)$

$($b$)$ Reconcile the income under both statements. $(2$ marks$)$

$($c$)$ Discuss three $(3)$ ways in which variable costing difTers from absorption costing. $(6$ marks$)$