Hclean Sdn Bhd (HSB) started its operation on 1st September 2019. The company produces superior quality mirror cabinet for bathroom. The following data relates to the second month of operation in HSB, ending 31 October 2019:

Beginning inventory 2,000 units

Ending inventory 3,000 units

Units produced 25,000 units

Units sold 24,000 units

Marketing and administrative expense (variable) RM4 per unit

Marketing and administrative expense (fixed) RM109,000 per month

Direct materials RM45 per unit

Direct labour RM24 per unit

Manufacturing overhead (variable) RM7 per unit

Manufacturing overhead (fixed) RM225,000 per month

Additional information:

1. Product cost per unit for October is the same with the product cost per unit for September.

2. Selling price per unit is RM120.

REQUIRED:

(a) Explain which costing system will produce higher net operating income.

(b) Calculate unit product cost under absorption costing and variable costing system.

(c) Prepare income statement using variable costing system for the month ended 31 October 2019.

(d) Calculate net operating income under absorption costing system, based on your answer in (c) above.

(e) Discuss TWO (2) disadvantages of absorption costing system.