Walk talk manufacture a cordless telephone system . At the beginning of the financial year ending 30 Nov 2009 , the firm budgeted to make and sell 50,000 units of its only product , the NOVA at the selling price of 30 $ per unit . other budgeted information is as follows :
Direct martial $4.00 per unit Direct labour $6.00 per unit
fixes production overhead for the year were budgeted at $800,000 to be absorbed on the basis of the number of units product . fixed selling and administration expenses were estimated at $100,000 to be absorbed on the basis of the number of units sold .
At the beginning of the year ( 1 Dec 2008 ) there were no units in inventory and no units were budgeted to be in inventory at end of the year ( 30 Nov 2009 ) .
situation at 1 Dec 2009 .
the market of cordless phone has changed rapidly over the course of one year . In response to competitive pressure, company had to make number of changes in NOVA model and range of colours available . there are now three different versions of NOVA and eight different colours.
During the year cost of direct martial and direct labour per unit have been incurred in line with budgeted cost above. Fixed production overhead have risen to $830,000 , due to the higher than expected rent review for factory. Selling and distribution costs were budgeted.
production has increased to $ 52,000 units, however despite of chance of product specification sales have only reached to $45,000 units.
a) prepare the income statement for the year ended 30 Nov 2010 using the following two methods.
1- absorption costing
2- marginal costing
b) compare the profits of absorption and marginal costing calculated above and explain the reasons for any differences.