Question 4 (11 marks)

Muji Company started to manufacture product pencil cases on 1 July 2018 with selling price of $120. The following is the budgeted income statement for the year ended 30 June 2019:

Sales	$	$
Less: Cost of sales		?
Cost of production	620 500
Closing inventory	(237 250)	383 250
Gross profit		?
Under-absorption of fixed production overheads		(14 000)
Selling expenses		?
Administrative expenses		(69 000)
Net profits		?

Budgeted annual production and sales volume were estimated to be the same. As at 30 June 2019, the annual budgeted production volume had already been reached. The number of units sold is greater than the number of closing inventory by 2000 units. Actual fixed production overheads were $150 000 for the year. Administrative expenses were fixed and same as budget. Selling expenses, except for $8 commission per unit sold, were also fixed and same as budget. Budgeted selling expenses for the year were amounted to $96 000.

REQUIRED:

(a) Prepare the income statement for the year ended 30 June 2019 using marginal costing. (8 marks)

(b) Prepare a statement to reconcile the difference between net profit under absorption costing and marginal costing. (3 marks)