QUESTION 1 (25 MARKS)

Geliga Sdn. Bhd. manufactures spare parts for speakers called GP Speak. The selling price per unit of GP Speak is RM45 and fixed manufacturing overheads are absorbed based on normal activity level. The following data relates to the product for 2020.

Fixed manufacturing overhead per annum RM50,000

Fixed selling and administrative expenses per annum RM20,000

Direct material cost per unit RM10.00

Direct labour cost per unit RM16.00

Variable selling and administrative expenses per unit RM2.00

Normal production level 5,000 units

Actual production level 7,000 units

Units sold 6,500 units

Beginning inventory Nil

Required:

a. Determine the ending inventory for 2020. (2 marks)

b. Calculate manufacturing cost per unit under absorption costing and variable costing approach. (4 marks)

c. Prepare an income statement for Geliga Sdn. Bhd. using variable costing approach and absorption costing approach. (14 marks)

d. Compare the operating income obtained from both methods and explain the reasons for the differences. (5 marks)