Variable and absorption costing, explaining operating income differences. Nascar Motors assembles and sells motor vehicles. It uses an actual costing system, in which unit costs are calculated each month. Data relating to April and May of 2007 are April May Unit data:

Beginning inventory 0 150 Production 500 400 Sales 350 520 Variable cost data:

Manufacturing costs per unit produced $12,000 $12,000 Marketing costs per unit sold 3,000 3,000 Fixed cost data:
Manufacturing costs $2,000,000 $2,000,000 Marketing costs 600,000 600,000 The selling price per motor vehicle is $28,800.
Required 1. Present income statements for Nascar Motors in April and May of 2007 under

(a) variable costing and

(b) absorption costing.
2. Prepare a numerical reconciliation and explanation of the difference between operating income for each month under absorption costing and variable costing.
Excel Application For students who wish to practise their spreadsheet skills, the following is a step-by-step approach to creating an Excel spreadsheet to work this problem.
Step-by-Step (Program your spreadsheet to perform all necessary calculations. Do not “hard-code” any of your calculations.)
1. At the top of a new spreadsheet, create an “Original Data” section for die unit data, variable cost data, and fixed cost data for April and May in exacdy the same format as shown for Nascar Motors on page 349.
2. Skip two rows, and create a section called “Inventoriable Costs,” with rows for “Variable Manufacturing Costs,” “Fixed Indirect Manufacturing Costs for April,” “Fixed Indirect Manufacturing Costs for May,” “Total Inventoriable Costs for April,” and “Total Inventories Costs for May,” and columns for “Variable Costing” and “Absorption Costing.” Assume the budgeted denominator level of production for April and May is 500 units, which is the same as actual production in April. Use data from the Original Data section to compute inventori¬
able costs under both variable and absorption costing. {Hint: Under absorption costing, the fixed indirect manufacturing costs allocated to each unit ofinventory should reflect total fixed manufacturing costs divided by the actual level of production, whereas inventoriable costs under variable costing should reflect only variable manufacturing costs.)
3. Skip two rows, and create a section called “Problem 1” and a subsection, “Panel A: Variable Costing.” Following the format in Panel A, Exhibit