Trendy Manufacturers commenced operations during January 2019. It produces designer ladies dresses using direct materials that are imported from Italy. During 2019 the production and sales volumes were 2 400 dresses and 2 000 dresses respectively. Fixed manufacturing costs and variable manufacturing costs totalled R672 000 and R2 880 000 respectively. Fixed selling and administrative costs amounted to R432 000 whilst variable selling costs amounted to R648 000. During 2020 the production increased to 3 000 dresses. The direct materials were imported at a cost of R700 per dress plus import duties of R50 per dress. The labour cost of the personnel who were involved in making the dresses was R350 per dress. Other variable manufacturing costs totalled R600 000. Fixed manufacturing costs increased by R66 000. The normal selling price per dress was R3 000. A sales commission of R50 per dress sold, regardless of the selling price, was paid to the salespersons for the first time. Fixed selling and administrative costs increased by R38 000 whilst variable selling costs increased by R2 per unit sold. By the end of November 2020, 70% of the dresses that were available for sale were sold. The remaining dresses were put up for sale during December 2020 at 60% of the normal selling price. Only 50% of these marked-down dresses were sold during December 2020. Trendy Manufacturers uses the first-in-first-out method for valuing inventories.

Question 1

Prepare the Income Statement for the year ended 31 December 2020 using the absorption costing method

Question 2

Prepare the Income Statement for the year ended 31 December 2020 using the variable costing method.