S.K. Industries Ltd produced and sold 1,50,000 plastics buckets. Each bucket was sold at a price of `20. The variable costs were `14 per bucket and fixed manufacturing costs were `3,00,000 per annum....

S.K. Industries Ltd produced and sold 1,50,000 plastics buckets. Each bucket was sold at a price of `20. The variable costs were `14 per bucket and fixed manufacturing costs were `3,00,000 per annum. The company’s normal production capacity is 1,50,000 plastic buckets.

1. You are required to prepare income statements under absorption costing and variable costing methods and comment on the results.

2. What would be the effect on income under the two different costing methods in the following situations: (a) Buckets produced and sold, 1,40,000 and (b) Buckets produced and sold, 1,60,000.