Bellingham, Inc., has just completed its first year of operations. The unit costs on a normal costing basis are as follows:

Actual fixed overhead was $12,000 less than budgeted fixed overhead. Budgeted vari¬
able overhead was $5,000 less than the actual variable overhead. The company used an ex¬
pected actual activity level of 36,000 direct labor hours to compute the predetermined over¬
head rates. Any overhead variances are closed to Cost of Goods Sold.
Required:
1. Compute the unit cost using

(a) absorption costing and

(b) variable costing.
2. Prepare an absorption-costing income statement.
3. Prepare a variable-costing income statement.
4. Reconcile the difference between the two income statements.

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Manufacturing costs (per unit): Direct materials (2 lbs @ $2) Direct labor (1.5 hrs @ $9) Variable overhead (1.5 hrs @ $2) Fixed overhead (1.5 hrs @ $3) Total Selling and administrative costs: Variable Fixed During the year, the company had the following activity: Units produced Units sold Unit selling price Direct labor hours worked $ 4.00 13.50 3.00 4.50 $25.00 $5 per unit $190,000 24,000 21,500 $42 36,000