Absorption and Variable Costing with Over and Underapplied Overhead Flaherty, Inc., has just completed its first year of operations. The unit costs on a normal costing basis are as follows: Manufacturing costs (per unit): Direct materials (3 lbs. @ 1.25) $3.75 Direct labor (0.4 hr. 16.50) 6.60 Variable overhead (0.4 hr. 5.00) 2.00 Fixed overhead (0.4 hr. 7.00) 2.80 Total $15.15 Selling and administrative costs: Variable Fixed $1.70 per unit $215,500 During the year, the company had the following activity: Units produced Units sold Unit selling price Direct labor hours worked 27,500 24,750 $37 11,000 Actual fixed overhead was $12,400 less than budgeted fixed overhead. Budgeted variable overhead was $4,100 less than the actual variable overhead. The company used as expected actual activity level of 11,000 direct labor hours to compute the predetermined overhead rates. Any overhead variances are closed to Cost of Goods Sold 1. Compute the unit cost using (a) absorption costing and (b) variable costing. Unit Cost Absorption costing Variable costing 2. Prepare an absorption-costing income statement. Round your answers to the nearest cent. Flaherty, Inc. Absorption-Costing Income Statement For the First Year of Operations Less: Gross profit Operating income Accounting numeric field 3. Prepare a variable-costing income statement. Round your answers to the nearest cent. Flaherty, Inc. Variable-Costing Income Statement For the First Year of Operations Add: 4 Less: Contribution margin Operating income 00.000 88 4. Reconcile the difference between the two income statements. The absorption costing generates an income $ Ithan variable costing.