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 12 18 7 5 Total variable costs per unit $ 42 Fixed costs per month: Fixed manufacturing overhead Fixed selling and administrative $162,000 145,800 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: May June Units Produced 16, 200 16,200 Units Sold 13,600 18,800 Income statements prepared by the Accounting Department using absorption costing are presented below: Sales May June $ 870,400 $1,203,200 0 761,400 122,200 761,400 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 761,400 122,200 883,600 0 639,200 883,600 231,200 213,800 319,600 239,800 Operating income $ 17,400 $ 79,800 Required: 1. Determine the unit product cost under each of the following methods. 47 a. Absorption costing $ b. Variable costing $ 37 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 870,400 $ 1,203,200 $ 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 0 0 0 0 Total variable expenses 0 0 870,400 1,203,200 Fixed expenses: 0 Total fixed expenses Operating income (loss) $ 870,400 $ 1,203,200 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: 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 $ 0