## Answers

**Requirement 2:**

Absorption Costing Shows higher profit. The reason behind higher profit is that in absorption costing, the fixed overhead have been charged to income statement on proportionate basis whereas in case of variable costing, whole of the fixed expenses are charged to the income statement resulting in lower profits.

Notes:

- Be careful while reading figures (with commas).
- The Incremental benefit is done on the basis of variable costing.

Requirement 1 ABSRPTION COSTING Sales Revenue Less: Manufacturing Cost Manufacturing Margin Less: Operating Expenses Opearting Profit $ 94,56,000.00 $ 57,13,000.00 $ 37,43,000.00 $ 16,28,853.66 $ 21,14,146.34 VARIABLE COSTING Sales Revenue Less: Variable Manufacturing Cost Selling Commission Contribution margin Less: Fixed Cost Manufacturing Expenses Operating Expenses Operating Profit $ 94,56,000.00 $ 41,37,000.00 $ 13,79,000.00 $ 39,40,000.00 $ 16,40,000.00 $ 2,60,000.00 $ 20,40,000.00 Requirement 3 INCREMENTAL BENEFIT ANALYSIS (Variable Costing) Incremental Contribution margin from additional 8,000 units $ 1,60,000.00 Less: Incremental promotional cost $ 1,40,000.00 Incremental Benefit $ 20,000.00

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