Example-1 Variable and absorption costing, explaining operating-income differences. EntertainMe Corporation manufactures and sells 50-inch television sets and uses standard costing. Actual data relating to January, February, and March 2017 are as follows: January February March 0 150 150 1,400 Unit data: Beginning inventory Production Sales Variable costs: Manufacturing cost per unit produced 1,500 1,350 1,520 1.530 1,400 $1,000 S 1,000 s 800 $ 1.000 $ 800 S 800 Operating (marketing) cost per unit sold Fixed costs: Manufacturing costs Operating (marketing) costs S525.000 $130,000 $525,000 $525.000 $130,000 $130,000 The selling price per unit is $3,300. The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is 1,500 units. There are no price, efficiency, or spending variances. Any -production-volume variance is written off to cost of goods sold in the month in which it occurs. 1. Prepare income statements for EntertainMe in January, February, and March 2017 under (a) variable costing and (b) absorption costing. 2. Explain the difference in operating income for January, February, and March under variable costing and absorption costing. Example-2 Variable manufacturing overhead variance analysis. The Sourdough Bread Company bakes baguettes for distribution to upscale grocery stores. The company has two direct-cost categories: direct materials and direct manufacturing labor. Variable manufacturing overhead is allocated to products on the basis of standard direct manufacturing labor-hours. Following is some budget data for the Sourdough Bread Company: Direct manufacturing labor use 0.02 hours per baguette Variable manufacturing overhead $10.00 per direct manufacturing labor-hour The Sourdough Bread Company provides the following additional data for the year ended December 31, 2017: Planned (budgeted) output Actual production Direct manufacturing labor Actual variable manufacturing overhead 3.100,000 baguettes 2,600,000 baguettes 46,800 hours $617,760 Required: 1. What is the denominator level used for allocating variable manufacturing overhead? (That is, for how many direct manufacturing labor-hours is Sourdough Bread budgeting?) 2. Prepare a variance analysis of variable manufacturing overhead. 3. Discuss the variances you have calculated and give possible explanations for them