Carmichael

Industries is in the process of analyzing its manufacturing overhead costs. Carmichael

Industries is not sure if the number of units produced or the number of direct labor (DL) hours is the

best cost driver to be used for predicting manufacturing overhead

(MOH) costs. The following

information is

FN3140: Module 4 Costing and Cost Decisions Exercise 4.1 Identifying and Classifying Costs Marty's Entrees produces frozen meals, which it sells for $9 each. The company uses the FIFO inventory costing method, and it computes a new, monthly, fixed manufacturing overhead rate based on the actual number of meals produced that month. All costs and production levels are exactly as planned. The following data are from Marty's Entrees' first two months in business: January February Sales 1,400 meals 1,800 meals Production 2,000 meals 1,400 meals Variable manufacturing expense per meal $5 $5 Sales commission expense per meal $1 $1 Total fixed manufacturing overhead $700 $700 Total fixed marketing & administrative expenses $500 $500 Based on the given information, answer the following questions: Compute the product cost per meal produced under absorption costing and under variable costing. Do this first for January and then for February. Prepare separate monthly income statements for January and for February, using absorption costing and variable costing. Is operating income higher under absorption costing or variable costing in January? In February? Explain the pattern of differences in operating income based on absorption costing versus variable costing. Submission Requirements: Answer each problem in detail with conclusions and results. Submit the calculations in a Microsoft Excel file, showing step-by-step calculations. Submit the responses in a Microsoft Word document meeting the following criteria: o Font: Arial, Size: 12 point o Length: 2-3 pages Evaluation Criteria: The exercise rubric will be used to evaluate your responses. 1