Arcade Away manufactures video games that it sells for $44 each. The company uses a fixed manufacturing overhead allocation rate of $4 per game. Assume all costs and production levels are exactly as planned. The following data are from ArcadeAway's first two months inbusiness

October

Sales 1,900 units

Production 2,300 units

Variable manufacturing cost per game 18

Sales commission cost per game 6

Total fixed manufacturing overhead 9,200

Total fixed selling and administrative costs 7,500

November

Sales 2,600 units

Production 2,300 units

Variable manufacturing cost per game 18

Sales commission cost per game 6

Total fixed manufacturing overhead 9,200

Total fixed selling and administrative costs 7,500

Requirements

1. Compute the product cost per game produced under absorption costing and under variable costing.

2. Prepare monthly income statements for October and November, including columns for each month and a totalcolumn, using these costingmethods:

a. absorption costing.

b. variable costing.

3. Is operating income higher under absorption costing or variable costing in October? In November? Explain the pattern of differences in operating income based on absorption costing versus variable costing.

4. Determine the balance in Finished Goods Inventory on October 31 and November 30 under absorption costing and variable costing. Compare the differences in inventory balances and the differences in operating income. Explain the differences in inventory balances based on absorption costing versus variable costing.