Sales revenue 34.70,000 Less cost of goods sold: Variable manufacturing cost (current production) (Working note) 1,53,600 Add cost of opening inventory 42,000 Loss cost of closing inventory (31,200) Total 1.64.400 Contribution (manufacturing and final) 3,05,600 Less non-production costs: Fixed manufacturing costs (1.34.400) Selling and distribution costs (20,000) Administrative costs (22,000) Net income before taxes 1,29,200 WORKING NOTES Current production costs absorption costing) 2,56,000 Less fixed overheads absorbed: Total fixed overheads 1,34,400 Less unfavourable capacity variance (representing un-absorbed fixed overheads) 32,000 (1,02,400) Current production costs (variable) 1,53,600 P.15.8 Mr Mukesh, The Chief Accountant of the Standard Glass Manufacturing Company Ltd has pre- pared the following income statement on traditional costing basis for three quarters of the current year. Particulars Quarter 1 Quarter 2 Quarter 3 Sales revenue 5.25.000 84,50,000 25,25,000 Less total current cost of manufacturing goods 4,55,000 5,20,000 3,90,000 Add cost of opening inventory Nil 1,30.000 j41 Nil Less cost of closing inventory NII (1,30,000) (65,000) Cost of goods produced and sold 4,55,000 3,90,000 4,55,000 Gross margin (unadjusted) 70,000 60,000 70,000 Less capacity variance 15,000 Nil 30,000 Gross margin (adjusted) 55,000 60,000 40,000 Selling and administrative expenses 20.000 20,000 20,000 Net income before taxes 35.000 40.000 20,000 Less income taxes (0.35) 12.250 14.000 7,000 Net income after taxes 22.750 26.000 10.000 (a) Additional information: Units produced 35,000 40,000 30,000 Units sold 35,000 30,000 35,000 (b) Standard fixed manufacturing overhead rate is 33 per unit. The management of the company is surprised at the results of the second quarter. It believes there must be some mistake in the income statement. You are required to explain the income differences to the management by revising the statements on variable costing basis