RM QUESTION 2 Bubble Company's first two years of operation, the company reported absorption costing net operating income as follows: Year 1 Year 2 RM Sales @ RM25 per unit 1,000,000 1.250.000 Cost of goods sold @ RM 18 per unit 720,000 900.000 Gross Margin 280,000 350,000 Selling and administration expenses 210,000 230,000 Net operating income 70,000 120,000 45,000 50.000 Units produced 45,000 Units sold 40,000 The company's product follows: cost is computed as RM 7 Direct material Direct labour Variable manufacturing overhead 1 Fixed manufacturing overhead 270,000 *RM2 per unit variable; RM130,000 fixed each year Other information: 40% of fixed manufacturing overhead consists of wages and salaries and the remainder consists of depreciation charges on production equipment and buildings. Required: Prepare a marginal costing contribution format income statement for both years. (13 marks) Reconcile the absorption costing and the marginal costing net operating income figures for both years. (6 marks) i Explain THREE (3) advantages of treating fixed manufacturing overheads as product costs. (6 marks) RM QUESTION 2 Bubble Company's first two years of operation, the company reported absorption costing net operating income as follows: Year 1 Year 2 RM Sales @ RM25 per unit 1,000,000 1.250.000 Cost of goods sold @ RM 18 per unit 720,000 900.000 Gross Margin 280,000 350,000 Selling and administration expenses 210,000 230,000 Net operating income 70,000 120,000 45,000 50.000 Units produced 45,000 Units sold 40,000 The company's product follows: cost is computed as RM 7 Direct material Direct labour Variable manufacturing overhead 1 Fixed manufacturing overhead 270,000 *RM2 per unit variable; RM130,000 fixed each year Other information: 40% of fixed manufacturing overhead consists of wages and salaries and the remainder consists of depreciation charges on production equipment and buildings. Required: Prepare a marginal costing contribution format income statement for both years. (13 marks) Reconcile the absorption costing and the marginal costing net operating income figures for both years. (6 marks) i Explain THREE (3) advantages of treating fixed manufacturing overheads as product costs. (6 marks)