Celestial Ltd has just organized a new division to manufacture and sell specially designed tables using select hardwoods for personal computers. The companys new plant is highly automated and thus requires high monthly fixed costs, as shown in the costs schedule below:

Variable manufacturing costs per unit:

Direct materials $86

Variable manufacturing overhead $4

Fixed manufacturing overhead cost (total) ............... $240,000

Selling and administrative costs:

Variable 15% of sales

Fixed (total) $160,000

Celestial Ltd. regards all of its workers as full-time employees and the company has a long-standing no-layoff policy. Furthermore, production is highly automated. Accordingly, the company has included in its fixed manufacturing overhead all of its labour cost.

During the first month of operations, the following activity was recorded.

Units produced 4,000

Units sold 3,200

Selling price per unit $250

Required:

1. Compute the unit product cost under:
   1. Absorption costing.
   2. Variable costing.
2. Prepare an income statement for the month using absorption costing.
3. Prepare an income statement for the month using variable costing.