Question1

Moonlight.Ltd ( Moonlight) manufactures and sells three types of computer keyboards and data for these for June was as follows:

	Gaming	Standard	Eco
Selling price (per unit)	$265	$220	$195
Variable materials (per unit)	$150	$125	$100
Variable labour (per unit)	$36	$36	$30
Variable production overhead (per unit)	$20	$18	$16
Actual production (units)	250	400	500
closing inventory (units)	25	30	10

The variable labour rate is $10 per hour and Moonlights fixed overheads for June were $23,040. There was no opening inventory of any of the keyboards.

During July, Moonlights fixed overheads absorption rate was calculated as $6 per labour hour. The labour cost per hour and per unit remained at their June values. The value of the closing inventory for each type of keyboard was calculated using absorption costing as below.

	Closing inventory
	$	Units
Gaming	4,600	20
Standard	6,000	30
Eco	800	5

In August, Moonlight sold all the keyboards it could produce during the month together with the entire opening inventory. Fixed production overheads were $31,000 for August; and the selling price, absorption cost, production and inventory information for August was as follow:

	Gaming	Standard	Eco
Selling price (per unit)	$270	$230	$195
Total absorption cost (per unit) as July	$230	$200	$160
Opening inventory (units)	20	30	5
Actual production (units)	300	400	600

In September, production data and costs were the same as in August, but Moonlight did not sell all the keyboard that it produced

Required:

1. Assume that there was $1,170 of fixed production overheads included in the value of opening inventory, prepare the Income Statement for August under both marginal costing and absorption costing?
2. In September, Moonlights profit was higher under which costing (marginal costing or absorption costing)?