PROBLEM 1 - ABSORPTION COSTING AND VARIABLE COSTING (15%) Equili produces high end bottled water. Each of its 500 ml bottled water is sold at $5. Equili has been listed in the stock exchange since 2008, which means that Equili is required to produce financial statements according to the accounting standard. Following are the income statement produced by Equili for 2020 and 2021 as per accounting standard: 2020 ($ 000) 2021 ($ 000) Revenue 55,000 60.000 Cost of Goods Sold Beginning inventory 0 3.000 Cost of manufacturing 36,000 39,000 Ending inventory (3,000) (6,000) Cost of Goods Sold 33.000 36.000 Gross Margin 22,000 24,000 Marketing Expenses 13,000 14,000 General and Admin Expenses 4.500 4.500 Operating Income 4,500 5,500 In 2020 and 2021, Equili applied standard cost of $2 variable cost and allocate $1 of fixed manufacturing overhead cost per bottled water. Schedule of production shows that Equili produced 12,000,000 and 13,000,000 bottles of water in 2020 and 2021 respectively. Total fixed manufacturing overhead cost are $12,000,000 in 2020. In 2021, due to increasing rental price, fixed manufacturing overhead cost are $13,000,000. The fixed manufacturing overhead cost are allocated based on the number of units produced in the period. The marketing expenses consist of $2,000,000 fixed salary cost and the remaining cost are variable based on the number of bottled waters sold. Required: 1. Prepare operating income statement for 2020 and 2021 using Variable Costing method (109%) 2. Reconcile (numerically) and explain the difference in the operating income under the two different method (59%)