The following data has been extracted from the operating records of HPPT Solution Sdn Bhd for the last two quarters of the year to 31 December 2020:

Quarter 3
Production units 7,000
Sales units 5,500 RM
Selling price per unit 100
Variable manufacturing cost per unit:
Direct material cost 20
Direct labor cost 15
Variable overheads 10
Fixed production overheads are budgeted at RM120,000 for a budgeted production of 8,000 units per quarter. These overheads are absorbed on per unit of production basis.
Non-production overheads comprised:
Fixed administration expenses RM40,000 per quarter.
Selling and distribution expenses are 10% of sales.
You are required to prepare an income statement under:
(a) Marginal costing and
(b) Absorption costing.

Solution to Above Question

Income statement preparation under marginal costing and absorption costing differs significantly, and it is therefore important to consider the basic differences between the two while preparing such income statements. For example, an income statement prepared under marginal costing is useful in analysing inventory and production cost, income statement prepared from the absorption costing takes into consideration the cost by dividing it into product and period cost. The preparation of income statement in the given scenario for HPPT Solution Sdn Bhd using both the marginal costing and absorption costing is performed as follows….