Question $1$

KC Ltd manufactures and sells a single product. Cost data for the product are given below

Variable cost per unit

Direct Materials $$6$

Direct labour $$11$

Variable manufacturing overhead $$5$

Variable selling and administrative $$3$

Fixed costs per month

The product sells for $$60$ per unit. The number of units produced and sold in January is $17,500$ and

$15,000$ respectively. In February, the number of units produced is unchanged but the number of

units sold is $20,000.$

The company prepared the following absorption costing income statement for January and

February as below:

Sales

Cost of goods sold

Gross margin

Selling and admin

Net operating income

Required:

$($a$)$ Prepare the variable costing income statement for January and February.

$($b$)$ Explain the difference between variable costing and absorption costing income statement for

January and February.