Question 4 (29 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

Question 4 (29 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 540 2022 $40 Selling price per unit Direct labour cost per unit $3 $2 Direct material per unit Direct expense per unit $3 $5 $2 Variable overheads per unit Fixed overheads (Actual) $3 $340,000 $3 $460,000 $2 34,000 36,000 Variable selling cost per unit $2 32,000 26,000 Actual production Actual sales On January 1, 2022, Encore Inc. had 3,000 units of fans and for both periods, the budgeted fixed 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 profits 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) (4 marks) e. Prepare reconciliation between both profits for both years.

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