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

18

Variable factory overhead

7

Variable selling and administrative

5

Total variable costs per unit

$

42

Fixed costs per month:

Fixed manufacturing overhead

$

162,000

Fixed selling and administrative

145,800

Total fixed cost per month

$

307,800

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	16,200	13,600
June	16,200	18,800

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

May

June

Sales

$

870,400

$

1,203,200

Cost of goods sold:

Beginning inventory

0

122,200

Add cost of goods manufactured

761,400

761,400

Goods available for sale

761,400

883,600

Less ending inventory

122,200

0

Cost of goods sold

639,200

883,600

Gross margin

231,200

319,600

Selling and administrative expenses

213,800

239,800

Operating income

$

17,400

$

79,800

Determine the unit product cost under each of the following methods.

a. Absorption costing

b. Variable coasting

2.	Prepare variable costing income statements for May and June using the contribution approach.

May June

Sales

variable expenses:

Variable cost of goods:

1.

2

3

4

5

6

Total variable expenses

7

Fixed expenses

8

9

Total fixed expenses

Operating income(loss)