Question

REQUIRED 2.1 Use the information provided below to prepare the Income Statement of Deere Limited for the month ended 31 March 2020 using the: 2.1.1 Variable costing method. 2.1.2 Absorption costing method. 2.2 Reconcile the profit calculated according to variable costing (in question 2.1.1) with the profit calculated according to absorption costing (in question 2.1.2).
INFORMATION The following information was extracted from the accounting records of Deere Limited for the month ended 31 March 2020: Inventory on 01 March 2020 Nil Production 50 000 units Sales 45 000 units

Selling price per unit R120 Manufacturing costs: Fixed R300 000 per month Variable R50 per unit Marketing costs: Advertising and salaries R42 000 per month Sales personnel’s commission 5% of sales Administration costs: Office costs including salaries R60 000 per month Other office costs R7 per unit sold

Answer 1

The Absorption Costing Income Statement- Deere Limited
Particular	in RM	in RM
No. of Unit Sold		45000
Sales @120		$5,400,000
Less: Manufacuting Cost of Goods Sold
Variable Manufacuring Cost ( 45000*50)	2250000
Fixed manufacturing Cost ( 300000/50000*45000)	270000	$2,520,000
Gross Margin		$2,880,000
Less: Selling & Admin Expense
Sales Person Commission (5%*5400000)	270000
Advertising & Salaries	42000
Office Cost- Salaries	60000
Other Office Cost ( 7*45000)	315000	$687,000
Net operating income		$2,193,000
The Variable Costing Income Statement- Deere Limited
Particular	in RM	in RM
No. of Unit Sold		45000
Sales @120		$5,400,000
Less: Variable cost
Variable Manufacuring Cost ( 45000*50)	$2,250,000.00
Variable Selling & Admin Expense
Sales Person Commission (5%*5400000)	270000
Other Office Cost ( 7*45000)	315000
Total Variable Cost		$2,835,000.00
Contribution margin		$2,565,000.00
Fixed expense:
Fixed manufacturing Cost	300000
Fixed Selling & Admin Cost
Advertising & Salaries	42000
Office Cost- Salaries	60000
Total Fixed Expense		402000
Net operating Income		$2,163,000.00
Part-C: Reconciliation Statement of Income
	$
Income under variable c osting	$2,163,000.00
Fixed OH in Invenry (300000/50000*45000)*5000	$30,000.00
Income under Absorption Costing	$2,193,000.00