Prepare the income statement of Grant Limited

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Question - Grant Ltd manufactures a gadget. The following information relates to March 2021:

Sales (number of gadgets)


15,000

Selling price per unit


110

Manufacturing cost of gadgets:



Variable


468,750

Fixed


187,500

Selling and administrative cost:

5

93,750

Fixed selling cost


50,000

Fixed administration cost


12,500

Inventory of gadgets at 31 March 2021

3,750 units


Only 15,000 of the 18,750 units were sold during March 2021.

Required -

a) Prepare the income statement of Grant Limited using the variable costing method.

b) Prepare the income statement of Grant Limited using the absorption costing method.

c) Explain why the net profit before tax differs between the variable and absorption cost methods.

d) Indicate which method should be used for monthly management accounts.

Reference no: EM133106105

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