# Question

Refer to the data in Exercise 6–1 for Shastri Bicycle. The absorption costing income statement prepared by the company’s accountant for last year appears below:
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . R 4,000,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . 2,960,000
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . 1,040,000
Selling and administrative expense . . . . . . . . 560,000
Net operating income . . . . . . . . . . . . . . . . . . R 480,000

Required:
1. Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period.
2. Prepare an income statement for the year using variable costing. Explain the difference in net operating income between the two costing methods.

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