Answer Happy

Problem 8-15 Prepare and Reconcile Variable Costing Statements [LO1, LO2, LO3, LO4] 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 Total variable costs per unit Fixed costs per month: Fixed manufacturing overhead Fixed selling and administrative Total fixed cost per month May June Units Produced Units Sold 15,400 24, 200 19,800 19,800 The product sells for $64 per unit. Production and sales data for May and June, the first two months of operations, are as follows: $ Sales Cost of goods sold: Beginning inventory Add cost of goods manufactured Goods available for sale $ Less ending inventory Cost of goods sold Gross margin Selling and administrative expenses Operating income 14 21 7 4 46 $217,800 118,800 $336,600 Income statements prepared by the Accounting Department using absorption costing May June 985,600 $1,548,800 $ 0 1,049,400 1,049,400 233,200 816,200 169,400 180,400 $(11,000) 233,200 1,049,400 1,282,600 1,282,600 266,200 215,600 50,600 $ presented below:

1. Determine the unit product cost under each of the following methods. a. Absorption costing b. Variable costing 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.) Variable expenses: Variable cost of goods sold: Total variable expenses Fixed expenses: Total fixed expenses Operating income (loss) May June

3. Reconcile the variable costing and absorption costing operating income figures. (Loss amounts should be indicated with a minus sign.) Variable costing operating income (loss) Add: Cost deferred in inventory under absorption costing Deduct: Cost released from inventory under absorption costing Absorption costing operating income May June