[Jannex]

Standard cost per unit:
DM 13
DL 10
Variable FOH 2
VC per unit 25

Production and sales-units:
2010 Production 17,000
2010 Sales 14,000
2009 Production 14,000
2009 Sales 16,000

There was no 2009 beginning inventory. The expected normal production each year is 15,000 units. Total manufacturing overhead each year are P120,000. Units produced are expected to be sold at P45 each.

Fixed selling and Admin. Expenses are budgeted at P65,000 yearly while variable selling & admin. Expenses are expected to be 10% of sales.

Required:
1. Prepare income statements for the years ended December 31, 2009 & 2010 under:
a. VARIABLE COSTING METHOD b. ABSORPTION COSTING METHOD
2. Reconcile the difference in net income.