Question 1 Absorption and Variable costing

Rove Ltd manufactures banana chips. Last year 2021 it produces 50,000 chips but only sold 45,000 chips. Presented below is the cost structure of Rove Ltd.

VC per banana chips

$55.20

$13.50

Total FC for the year

$638,000

$456,000

Manufacturing cost Selling & administrative

Rove Limiteds gross margin in 2021 was $1 889 000 and its contribution margin was $1 855 700

Required

Prepare a absorption income statement (show your working out)

Prepare a variable costing income statement. (show your working out)

Explain the difference or changes in operating net income between absorption and variable costing. (Between 10 to 20 words only).