Carlita's Foods produces frozen meals that it sells for $6 each. The company computes a new monthly fixed manufacturing overhead rate based on the planned number of meals to be produced that month. All costs and production levels are exactly as planned. The following data are from Clarita's Foods' first month in business:

January 2011

Sales 1,150 Meals

Production 1,350 meals

Variable manufacturing cost per meal $2

Sales commission cost per meal $1

Total fixed manufacturing overhead $540

Total fixed marketing and administrative costs $350

Requirements

1.	Identify the costs as part of total product costs under absorption costing, variable costing, or both. Indicate A for absorption costing, V for variable costing, B for both, or N for neither.
2.	Compute the product cost per meal produced under absorption costing and under variable costing.
3.	Prepare income statements for January 2011 using
	a.	absorption costing.
	b.	variable costing.
4.	Is operating income higher under absorption costing or variable costing in January? Give two reasons why.