Linda's Foods produces frozen meals that it sells for $7 each. The company computes a new monthly fixed manufacturing overhead allocation rate based on the planned number of meals to be produced that month. Assume all costs and production levels are exactly as planned. The following data are from Linda's Foods's first month in business:
....................................................... January 2018
Units produced and sold:
Sales ...................................................... 1,000 meals
Production ................................................ 1,200 meals
Variable manufacturing cost per meal ........................... $ 3
Sales commission cost per meal ..................................... 1
Total fixed manufacturing overhead ........................... 660
Total fixed selling and administrative costs ................... 500
Requirements
1. Compute the product cost per meal produced under absorption costing and under variable costing.
2. Prepare income statements for January 2018 using:
a. absorption costing.
b. variable costing.
3. Is operating income higher under absorption costing or variable costing in January?