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 $ 12 Direct labour 17 Variable factory overhead 5 Variable selling and administrative 4 Total variable costs per unit $ 38 Fixed costs per month: Fixed manufacturing overhead $ 271,200 Fixed selling and administrative 180,800 Total fixed cost per month $ 452,000 The product sells for $60 per unit. Production and sales data for May and June, the first two months of operations, are as follows: Units Produced Units Sold May 22,600 16,800 June 22,600 28,400 Income statements prepared by the Accounting Department using absorption costing are presented below: May June Sales $ 1,008,000 $ 1,704,000 Cost of goods sold: Beginning inventory 0 266,800 Add cost of goods manufactured 1,039,600 1,039,600 Goods available for sale 1,039,600 1,306,400 Less ending inventory 266,800 0 Cost of goods sold 772,800 1,306,400 Gross margin 235,200 397,600 Selling and administrative expenses 248,000 294,400 Operating income $ (12,800) $ 103,200

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 Direct labour Variable factory overhead Variable selling and administrative . Total variable costs per unit Fixed costs per month Fixed manufacturing overhead Fixed selling and administrative Total fixed cost per month 12 17 5 4 38 $ $271,200 180, 800 $452, 000 The product sells for $60 per unit. Production and sales data for May and June, the first two months of operations, are as follows: May June Units Produced 22, 600 22, 600 Units Sold 16,800 28, 400 Income statements prepared by the Accounting Department using absorption costing are presented below: Sales May $1,008,000 June $1,704, 000 266, 800 1,039, 600 1, 306, 400 Cost of goods sold: Beginning inventory Add cost of goods manufactured Goods available for sale Less ending inventory Cost of goods sold Gross margin Selling and administrative expenses Operating income 0 1,039, 600 1,039, 600 266, 800 772, 800 235, 200 248,000 $ (12, 800) 1,306, 400 397,600 294, 400 103, 200 3. Reconcile the variable costing and absorption costing operating income figures. (Loss amounts should be indicated with a minus sign.) May June Variable costing operating income (loss) Add: Cost deferred in inventory under absorption costing Deduct: Cost released from inventory under absorption costing Absorption costing operating income