11 / 35 67% Marginal Income Statement $ $ Sales XXX Less: Variable Cost Opening inventory (valued at marginal cost) XXX Variable Cost of Production XXX Variable selling and distribution XXX Less: Closing inventory (valued at marginal cost) (xxx) (xxx) CONTRIBUTION XXXX Less: Fixed costs XXX Profit/Loss XXX 11 3:16 PM W 23 3/22/2023 Q Search hpAnsv e.utech.edu.jm O unting 13 / 35 67% + Absorption Costing Income Statement $ $ Sales XXX Less: Cost of sales Opening inventory XXX Variable Cost of Production XXX Fixed overhead absorbed XXX Less: Closing inventory (xxx) XXX Under/(Over) absorption x/ (x) XXX Gross profit XXX Less: Non-production costs (xxx) 13 Profit/Loss XXX 3:16 PM O. Search W 23 3/22/2023 hpQuestion 4 129 marks! The management of Encore Inc. have been considering moving away from marginal costing since the closing stock consists only of variable costs and ignores fixed costs (which could be a considerable amount). As a result, they have approached you as the assistant cost controller to make some assessments by using the absorption costing approach to see if there is a major different in income. Below are data relevant for the years ended December 31, 2021 and December 31, 2022: 2021 2022 Sellin rice er umt $40 $40 Direct labour cost per unit $3 $3 Direct material per unit $5 $5 Direct expense per unit $2 $2 Variable overheads per unit $3 $3 Fixed overheads (Actual) $340,000 $460,000 Variable selling cost per unit $2 $2 Actual reduction 32,000 34,000 Actual sales 26,000 36,000 On January 1, 2022, Encore Inc. had 3,000 units of fans and for both periods, the budgeted xed overhead was $120,000 and budgeted production of 40,000 fans. Overheads are currently absorbed on a units produced basis. In an effort to show the managers the possible difference in prots that could arise if Encore Inc. were to adopt an absorption costing policy. Required: a. Prepare an income statement using marginal costing (clearly showing the treatment of inventory) as well as absorption costing for the year ended December 31, 2021. (12.5 marks) b. Prepare an income statement using marginal costing (clearly showing the treatment of inventory) as well as absorption costing for the year ended December 31, 2022. (12.5 marks) c. Prepare reconciliation between both prots for both years. (4 marks}