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 7 17 11 7 Total variable costs per unit $ 42 Fixed costs per month: Fixed manufacturing overhead Fixed selling and administrative $ 252,000 168,000 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: May Units Produced 21,000 21,000 Units Sold 16,000 26,000 June Income statements prepared by the Accounting Department using absorption costing are presented below: May June $1,024,000 $1,664,000 Sales Cost of goods sold: Beginning inventory Add cost of goods manufactured 0 987,000 235,000 987,000 Goods available for sale Less ending inventory 987,000 235,000 1, 222,000 0 Cost of goods sold 752,000 1,222,000 Gross margin Selling and administrative expenses 272,000 280,000 442,000 350,000 Operating income $ (8,000)) $ 92,000 Required: 1. Determine the unit product cost under each of the following methods. 47 a. Absorption costing $ b. Variable costing $ 35 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 June $ 1,024,000 $ 1,664,000 560,000 910,000 182,000 1,092,000 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) 112,000 672,000 175,000 497,000 112,000 0 1,092,000 182,000 1,274,000 390,000 609,000 415,000 252,000 252,000 168,000 420,000 (5,000) 168,000 420,000 $ (30,000) $ 3. Reconcile the variable costing and absorption costing operating income figures. (Loss amounts should be indicated with a minus sign.) June $ May (5,000) 60,000 0 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 0 60,000 60,000 $ 55,000 $