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

Variable costs per unit: Direct materials $ 7 Direct labour 17 Variable factory overhead 11 Variable selling and administrative 7 Total variable costs per unit $ 42 Fixed costs per month: Fixed manufacturing overhead $252,000 Fixed selling and administrative 168,000 Total fixed cost per month $420.000 The product sells for $64 per unit. Production and sales data for May and June, the first two months of operations, are as follows: Units Produced Units Sold May 21,000 16,000 June 21,000 26,000 r____________________________________ Income statements prepared by the Accounting Department using absorption costing are presented below: May June Sales $1,024,000 $1,664.000 Cost of goods sold: Beginning inventory 0 235,000 Add cost of goods manufactured 987.000 937.000 Goods available for sale 987,000 1,222,000 Less ending inventory 235,000 0 Cost of goods sold 752,000 1,222,000 Gross margin 272,000 442,000 Selling and administrative expenses 280,000 350,000 Operating income $ (8,000) $ 92,000 ' _- _ 2. Prepare variable costing income statements for May and June using the contribution approach. (Do not leave any empty spaces; input a O wherever it is required.) Variable expenses: Variable cost of goods sold: Total variable expenses Fixed expenses: Total xed expenses Operating income (loss) 3. Reconcile the variable costing and absorption costing operating income gures. (Loss amounts should be indicated with a minus sign.) Variable costing operating income (loss) Add: Cost deferred in inventory under absorption costing Deducl: Cost released from inventory under absorption costing Absorption costing operating income