Reference no: EM132611504

Shastri Bicycle, The absorption costing income statement prepared by the company's accountant for last year appears below:

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R4,000,000

Cost of goods sold . . . . . . . . . . . . . . . . . . . . 2,960,000

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . 1,040,000

Selling and administrative expense . . . . . . . . 560,000

Net operating income . . . . . . . . . . . . . . . . . . R480,000

Required:

Question 1. Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period.

Question 2. Make an income statement for the year using variable costing. Explain the difference in net operating income between the two costing methods.