Your company has a production capacity of 12,500 units and the normal capacity utilization is 80%. The opening inventory of finished goods on 1 April 2008 was 1,000 units. During the year that ended on 31 March 2009, it produced 11,000 units, though it could sell only 10,000 units.
The standard Variable Cost per unit is Rs. 6.50 and the Standard Fixed Factory Cost per unit is Rs. 1.50. The total Fixed Selling and Administration Overheads amounted to Rs. 10,000. The company sells its product at Rs. 10 per unit.
Prepare Income Statements under Absorption Costing and Variable Costing. Explain the reasons for the difference in profit, if any.
