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Audiophonics Limited manufactures and sells high-quality and durable ear buds for use with personal electronics that are custom moulded to each customer's ear. Cost data for the product follow: $ Variable costs per unit: Direct materials Direct labour Variable factory overhead Variable selling and administrative 10 18 Total variable costs per unit $ 43 Fixed costs per month: Fixed manufacturing overhead Fixed selling and administrative Total fixed cost per month $169,400 154,000 $323,400 The product sells for $66 per unit. Production and sales data for May and June, the first two months of operations, are as follows: May June Units Produced 15,400 15,400 Units Sold 13,200 17,600 Income statements prepared by the Accounting Department using absorption costing are presented below: May June $ 871,200 $1,161,600 Sales Cost of goods sold: Beginning inventory Add cost of goods manufactured 0 754,600 107,800 754,600 754,600 107,800 862,400 0 Goods available for sale Less ending inventory Cost of goods sold Gross margin Selling and administrative expenses 646,800 862,400 224,400 220,000 299, 200 242,000 Operating income $ 4,400\$ 57,200 Required: 1. Determine the unit product cost under each of the following methods. 49 a. Absorption costing b. Variable costing $ $ $ 38 2. Prepare variable costing income statements for May and June using the contribution approach. (Do not leave any empty spaces; input a 0 wherever it is required.) May June $ 871,200 $ 1,161,600 0 585,200 585,200 585,200 585,200 Sales Variable expenses: Variable cost of goods sold: Beginning inventory Add: Variable production costs Goods available for sale Less: Ending inventory Variable cost of goods sold Variable selling and administrative Total variable expenses Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative Total fixed expenses Operating income (loss) 585,200 66,000 651,200 220,000 585,200 88,000 673,200 488,400 169,400 154,000 323,400 $ (103,400) $ 169,4001 154,000 323,400 165,000 3. Reconcile the variable costing and absorption costing operating income figures. (Loss amounts should be indicated with a minus sign.) May Jui Variable costing operating income (loss) Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing Deduct: Fixed manufacturing overhead cost released from inventory under absorption costing Absorption costing operating income $ 0 $

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