Flaherty, Inc., has just completed its first year of operations. The unit costs on a normal costing basis are as follows:

Manufacturing costs $($per unit$)$:

Direct materials $(2$ lbs$.$ @ $1\mathrm{.}45)$ $$2\mathrm{.}90$

Direct labor $(0\mathrm{.}4$ hr$.$ @ $15\mathrm{.}50)6\mathrm{.}20$

Variable overhead $(0\mathrm{.}4$ hr$.$ @ $5\mathrm{.}00)2\mathrm{.}00$

Fixed overhead $(0\mathrm{.}4$ hr$.$ @ $7\mathrm{.}00)2\mathrm{.}80$

Total $$13\mathrm{.}90$

Selling and administrative costs:

Variable $$1\mathrm{.}80$ per unit

Fixed $$217,500$

During the year, the company had the following activity:

Units produced $26,000$

Units sold $23,400$

Unit selling price $$34$

Direct labor hours worked $10,400$

Actual fixed overhead was $$13,800$ less than budgeted fixed overhead. Budgeted variable overhead was $$4,500$ less than the actual variable overhead. The company used an expected actual activity level of $10,400$ direct labor hours to compute the predetermined overhead rates. Any overhead variances are closed to Cost of Goods Sold.

Required:

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$1.$ Compute the unit cost using $($a$)$ absorption costing and $($b$)$ variable costing.

Unit Cost

Absorption costing $fill in the blank $4$da$552$fc$9$fc$1$ff$5\_1$

$13\mathrm{.}90$

Variable costing $fill in the blank $4$da$552$fc$9$fc$1$ff$5\_2$

$11\mathrm{.}10$

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$2.$ Prepare an absorption$-$costing income statement. Round your answers to the nearest cent.

Flaherty, Inc.

Absorption$-$Costing Income Statement

For the First Year of Operations

blank $

$

blank

Less: blank blank

Gross profit blank $fill in the blank $1$f$68820$e$2032045\_8$

blank

Operating income blank $fill in the blank $1$f$68820$e$2032045\_11$

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$3.$ Prepare a variable$-$costing income statement. Round your answers to the nearest cent.

Flaherty, Inc.

Variable$-$Costing Income Statement

For the First Year of Operations

blank $

$

blank

Add: blank blank

blank

Contribution margin blank $fill in the blank $5$b$9$ecc$00$f$06$afef$\_10$

Less: blank blank

$

blank

$

Operating income blank $fill in the blank $5$b$9$ecc$00$f$06$afef$\_16$

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$4.$ Reconcile the difference between the two income statements.

The absorption costing generates an income $fill in the blank $4$b$599$cf$8$d$013$fb$0\_1$

more

than variable costing.