Absorption vs. variable costing. Sonnenheim Bamberger is a German pharmaceutical company that provides a single drug—Mimic —for the treatment of hair loss in men.

Sonnenheim began commercial production of Mimic on January 1, 2007. Patients use three pills per day (365 days a year). Sonnenheim marketing analysts estimate 50,000 patients will use Mimic in 2007. Production in 2007 is 54,750,000 units (pills). However, only 44,800 patients are prescribed Mimic during 2007. Each patient used three pills per day for 365 days a year. The average wholesale selling price (the price Sonnenheim receives from distributors)

is $1.44 per pill. Sonnenheim’s actual costs are as follows:

Variable costs per unit Manufacturing costs per pill produced Direct materials $0.06 Direct manufacturing labour 0.04 Manufacturing overhead 0.11 Marketing costs perpillsold 0.07 Fixed costs Manufacturing costs $7,358,400 R&D 4,905,600 Marketing 19,622,400 Required 1. What is the number of Mimic pills actually sold in 2007, assuming all patients began using the drug on January 1 and used it through December 31? What is ending inventory on December 31, 2007?
2. Calculate operating income under variable costing and absorption costing for Sonnenheim Bamberger for the year ended December 31, 2007. The allocation bases for fixed manufacturing costs under absorption costing is $0.15 per unit (pill) produced. All variances are written off to cost of goods sold.
3. Explain differences in operating income in requirement 2.