Audiophonics Limited manufactures and sells high-quality and durable ear buds for use with personal electronics that are custom moulded to each customers ear. Cost data for the product follow:

Variable costs per unit:
Direct materials	$	7
Direct labour		14
Variable factory overhead		9
Variable selling and administrative		7
Total variable costs per unit	$	37
Fixed costs per month:
Fixed manufacturing overhead	$	242,400
Fixed selling and administrative		181,800
Total fixed cost per month	$	424,200

The product sells for $61 per unit. Production and sales data for May and June, the first two months of operations, are as follows:

	Units Produced	Units Sold
May	20,200	15,600
June	20,200	24,800

Income statements prepared by the Accounting Department using absorption costing are presented below:

	May			June
Sales	$	951,600		$	1,512,800
Cost of goods sold:
Beginning inventory		0			193,200
Add cost of goods manufactured		848,400			848,400
Goods available for sale		848,400			1,041,600
Less ending inventory		193,200			0
Cost of goods sold		655,200			1,041,600
Gross margin		296,400			471,200
Selling and administrative expenses		291,000			355,400
Operating income	$	5,400	\	$	115,800

1. Determine the unit product cost under each of the following methods. a. Absorption costing b. Variable costing $ $ 42 30 2. Prepare variable costing income statements for May and June using the contribution approach. (Do not leave any empty spaces; input a 0 wherever it is required.) May 951,600 June $ 1,512,800 $ 193,200 606,000 799,200 Sales Variable expenses: Variable cost of goods sold: Beginning inventory Add: Variable production costs Goods available for sale Less: Ending inventory Variable cost of goods sold Variable selling and administrative Total variable expenses Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative Total fixed expenses Operating income (loss) 606,000 606,000 193,2001 412,800 141,400 554,200 397,400 799,200 173,600 972,800 540,000 242,400 181,800 424,200 (26,800) 242,400 181,800 424,200 115,800 $ $ 3. Reconcile the variable costing and absorption costing operating income figures. (Loss amounts should be indicated with a minus sign.) June (115,800) Variable costing operating income (loss) | $ Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing Deduct: Fixed manufacturing overhead cost released from inventory under absorption costing Absorption costing operating income $ May (26,800)| $ 55,200 0 28,400 $ 55,200 (60,600)