Question

he following information relates to the only product made by Glorious G for the year ended 31 December 2019: Opening Inventory 0 Number of units manufactured 9 000 Number of units sold (at R540 per unit) 9 000 Direct Materials costs per unit R90 Direct Labour costs per unit R180 Variable manufacturing overheads cost per unit R90 Variable selling expenses per unit R20 Fixed Manufacturing overhead cost R450 000 Fixed selling and administrative expenses R180 000 REQUIRED: Draft the income statement for the year ended 31 December 2019 using the: 1.1 Variable Costing method (10) 1.2 Absorption Costing method (10)

Answer 1

1). Income statement using variable costing method: -

Income statement as on 31 December 2019
Revenues: R540 * 9000		R4860000
variable costs:
Direct Materials (R90 * 9000)	R810000
Direct Labour costs (R180 * 9000)	R1620000
Variable manufacturing overheads (R90 *9000)	R810000
Variable selling expenses (R20*9000)	R180000
Total variable costs		R3420000
contribution margin		R1440000
Fixed costs:
Fixed Manufacturing overhead	R450000
Fixed selling and administrative expenses	R180000
Total fixed costs		R630000
operating income		R810000

2). Income statement using absorption costing method: -

Income statement as on 31 December 2019
Revenues: R540 * 9000		R4860000
cost of goods sold:
Direct Materials (R90 * 9000)	R810000
Direct Labour costs (R180 * 9000)	R1620000
Variable manufacturing overheads (R90 *9000)	R810000
Fixed Manufacturing overhead	R450000
cost of goods sold		R3690000
Gross margin		R1170000
operating costs:
Variable selling expenses (R20*9000)	R180000
Fixed selling and administrative expenses	R180000
Total operating costs		R360000
operating income		R810000