You have been asked to prepare income statements for 2020 and 2021 using absorption and variable costing methods based on the bike costs and selling prices calculated in requirement (1). (30 marks)

4. Prepare the numerical reconciliation (for each year) to explain the difference in the net operating incomes reported under the two costing methods in requirement (3) and then comment on the differences in the two operating incomes for each year. (20 marks)

5. Explain how Ahmad's quotation for Bike N-52 order for 2021 (see the first paragraph of the conversation for details) may result in profit/loss. Show your calculation. (10 marks)

6. The CFO (Hamad) is seeking your advice on how applicable variable and absorption costing methods are for (a) pricing decisions and (b) reporting profit to stakeholders. (10 marks)

Case 1 (Chapter 6 Topic: Cost Methods): Case Background and Data Qbike Ine is well known as one of the best manufactures of racing bikes. The company offers a range of racing bike products to customers workidwide. Qbike uses the absorption costing apptoach for pricing mamufactured bikes, which are priced at 120% of the product eost. Recently, Qbike has been facing business challenges from (inter) naticnal competitues of bile makers. Due to this competition, Qbike's activities have declined by 20% in units rold and 50 is in units produced in 3021 compared to 3020 as shown in the following table= Exhibit (1): Sold and produced bikes in 2020, 2021 "No Beginning finished goods inventory in 2020 Thes issue fuelled tension within Qbke between Sara, the Marketing Manuger (MM) and Ahmed, the Financial Controller (TC). The cause of this tension was due to a recorded conversation dated at we end of 2021 : approach. Aec antribetion of nabb bike. Ahwed (FC): Fair moagh, but ar'r ast in the business for dharit) masent' After all, the cacb deat Mis ary, and there bare newr leor any anpleiete by firm? to miew the priaine policy grideliner? Immediately, the CFO of Qbike (Mr Hamad) asked Niter (M.A) to collcet data and bring it to the board mecting. The required data covers the actual perfomance of 2020 and 2021 . The FC. and MM were also invited to the mecting to provide an overview of sales and costs of bikes. The folkowing table presents product costs and expenses for 2020 and 2021 * - Approximately 75% of the total manufacturing overhead cost is variable, whereas the rest is fixcd costs. 3. You have been asked to prepare income statements for 2020 and 2021 using absorption and variable costing methods based on the bike costs and selling prices calculated in requirement (1). (30 marks) 4. Prepare the numerical reconciliation (for each year) to explain the difference in the net operating incomes reported under the two costing methods in requirement (3) and then comment on the differences in the two operating incomes for each year. (20 marks) 5. Explain how Ahmad's quotation for Bike N-52 order for 2021 (see the first paragraph of the conversation for details) may result in profit/loss. Show your calculation. (10 marks) 6. The CFO (Hamad) is seeking your advice on how applicable variable and absorption costing methods are for (a) pricing decisions and (b) reporting profit to stakeholders. (10 marks)