Refer to the data in Exercise 7-1 for Shastri Bicycle. An absorption costing income statement prepared by the company€™s accountant appears below:

Required:
1. Determine how much of the ending inventory of R740,000 above consists of fixed manufacturing overhead cost deferred in inventory to the next period.
2. Prepare an income statement for the year using the variable costing method. Explain the difference in net operating income between the two costingmethods.

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Sales (8,000 units x R500 per unit)... Cost of goods sold R4,000,000 0 Add cost of goods manufactured (10,000 units x R per unit) .3.700,000 Goods available for sale Less ending inventory .. 3,700,000 (2.000 units x R _per unit) ..-.. 740,000 2,960,000 1,040,000 Selling and administrative expenses: Variable selling and administrative Fixed selling and administrative. 160,000 400,000 .. 560,000 Net operating income R 480,000