The managers of Sawgrass Distributors limited currently employ a policy of marginal costing

system, but want to explore the benefits of absorption costing. Below are data relevant to the

year ended December $31,2012$ and $2013$:

$20122013$

Selling price per unit $$150$ $$150$

Labour cost per unit $$20$ $$20$

Direct material per unit $$25$ $$25$

Direct expense per unit $$5$ $$5$

Variable overheads per unit $$10$ $$10$

Fixed overheads $($actual$)$ $$1,500,000$ $$2,500,000$

Variable selling expenses per unit $$10$ $$10$

Actual production $150,000150,000$

Actual sales $130,000150,000$

On January $1,2012,$ the company had $20,000$ units valued at a cost of $$1,240,000.$ For both

periods the entity budgeted fixed overhead to be $$1,000,000$ and budgeted production of $500,000$

units. Overheads are absorbed on a per unit basis currently.

Required:

a$.$ Prepare an income statement using variable$/$marginal as well as absorption costing for the

year ended December $31,2012.$

b$.$ Prepare an income statement using variable$/$marginal as well as absorption costing for the

year ended December $31,2013.$

c$.$ Prepare a reconciliation between both profits for both years.