1. Sunshine Company manufactures and sells a single product. Cost data for the product are given below:

Selling price	$65
Variable Costs per Unit:
Direct Materials	8
Direct Labor	9
Variable Manufacturing Overhead	5
Variable Selling and Administrative	3
Fixed Cost per Unit
Fixed manufacturing overhead	$315,000
Fixed selling and administrative expense	$250,000

Production and sales data for January, the first month of operations is given below:

	Units Produced	Units Sold
January	18,000	15,000

Required:

a. Compute the unit product cost under:

(i) Absorption costing (ii) Variable costing

b. Prepare the absorption costing income statement for January.

c. Prepare the variable costing income statement for January.

d. Reconcile the variable costing and absorption costing income statements for January.

e. Explain why the two different costing systems result in varying profits. Which costing system seems more logical to you and why?