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

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Manufacturing costs:

Direct materials (3 lbs. @ $2) $ 6.00/unit

Direct labour (2 hrs. @ $8) 16.00/unit

Variable overhead (2 hrs. @ $1.75) 3.50/unit

Fixed overhead ?

Total $?

Selling and administrative costs:

Variable $4.00/unit

Fixed $100,000

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During the year, the company had the following activity:

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Units produced 20,000

Units sold 16,000

Direct labour hours worked 40,000

Unit selling price $50

Actual fixed overhead was $170,000 for the year and actual variable overhead was $72,000. Budgeted fixed overhead was $180,000 and the company used an expected activity level of 40,000 direct labour hours to compute the predetermined overhead rates. Any overhead variances are closed to Cost of Goods Sold.

a. Compute the unit cost under:

(i) absorption costing

(ii) variable costing

b. Prepare an absorption-costing income statement.

c. Prepare a variable-costing income statement.

d. Reconcile the difference between the two income statements.