Question 3 JJ produces and sells cotton jerseys. The company uses variable costing for internal purposes and absorption costing for external reporting. At year-end, financial information must be converted from variable costing to absorption costing to satisfy external requirements. At the end of 2018, management anticipated that 2019 sales would be 20% above 2018 levels. Thus, production for 2019 was increased by 20% to meet the expected demand. However, economic conditions in 2019 kept sales at the 2018 unit level of 40 000. The following data pertain to 2018 and 2019: Selling price per unit Sales (units) Beginning inventory (units) Production (units) Ending inventory (units 2018 R20 40 000 4 000 40 000 4000 201 R20 40 400 480 2 Production costs per unit (budgeted and actual) for 2018 and 2019 were: Material R2.25 Labour R3.75 Overhead R1.50 Total R7.50 Annual fixed costs for 2018 and 2019 (budge actual) were: d Saved on device Production costs per unit (budgeted and actual) for 2018 and 2019 were: Material R2.25 Labour R3.75 Overhead R1.50 Total R7.50 Annual fixed costs for 2018 and 2019 (budgeted and actual) were: Production R117 000 Selling and administrative R125 000 Total R242 000 The predetermined OH rate under absorption costing is based on annual capacity of 60 000. Any volume variance is assigned to Cost of Goods Sold. Required: 3.1 Prepare an Income Statement using variable costing. Income Statement using 3.2 Prepare an absorption costing. 3.3 Reconcile the profits. Question 3 JJ produces and sells cotton jerseys. The company uses variable costing for internal purposes and absorption costing for external reporting. At year-end, financial information must be converted from variable costing to absorption costing to satisfy external requirements. At the end of 2018, management anticipated that 2019 sales would be 20% above 2018 levels. Thus, production for 2019 was increased by 20% to meet the expected demand. However, economic conditions in 2019 kept sales at the 2018 unit level of 40 000. The following data pertain to 2018 and 2019: Selling price per unit Sales (units) Beginning inventory (units) Production (units) Ending inventory (units 2018 R20 40 000 4 000 40 000 4000 201 R20 40 400 480 2 Production costs per unit (budgeted and actual) for 2018 and 2019 were: Material R2.25 Labour R3.75 Overhead R1.50 Total R7.50 Annual fixed costs for 2018 and 2019 (budge actual) were: d Saved on device Production costs per unit (budgeted and actual) for 2018 and 2019 were: Material R2.25 Labour R3.75 Overhead R1.50 Total R7.50 Annual fixed costs for 2018 and 2019 (budgeted and actual) were: Production R117 000 Selling and administrative R125 000 Total R242 000 The predetermined OH rate under absorption costing is based on annual capacity of 60 000. Any volume variance is assigned to Cost of Goods Sold. Required: 3.1 Prepare an Income Statement using variable costing. Income Statement using 3.2 Prepare an absorption costing. 3.3 Reconcile the profits