Game Play manufactures video games that it sells for $44 each. The company uses a fixed manufacturing overhead allocation rate of $4 per game. Assume all costs and production levels are exactly as planned. The following data are from Game Play's first two months in business during 2018: (Click the icon to view the data.) Read the requirements. Requirement 1. Compute the product cost per game produced under absorption costing and under variable costing. Total product cost per game October 2018 November 2018 Absorption costing Variable Absorption Variable costing costing costing 18 14 18 14 Requirement 2a. Prepare monthly income statements for October and November, including columns for each month and a total column, using absorption costing. Net Sales Revenue Game Play Absorption Costing Income Statement October 2018 November 2018 Total 88000 132000 220000 Cost of Goods Sold 36000 54000 90000 Gross Profit 52000 78000 130000 Selling and Administrative Costs 19500 24500 26450 32500 53500 Operating Income 103550 Requirement 2b. Prepare monthly income statements for October and November, including columns for each month and a total column, using variable costing. Game Play Game Play Variable Costing Income Statement October 2018 November 2018 Total Operating Income Requirement 3. Is operating income higher under absorption costing or variable costing in October? In November? Explain the pattern of differences in operating income based on absorption costing versus variable costing. In October, the operating income is higher under costing. The primary reason for this is that run as part of the unit cost. Under the absorption costing method, are distributed across the entire production of fixed manufacturing overhead costs are In November, the operating income is higher under costing. The primary reason for this is because of fixed manufacturing overhead that is contained in the units in ending inventory under As inventory as was the case in November, October's costs that absorption costing assigned to that inventory are expensed in This November's Requirement 4. Determine the balance in Finished Goods Inventory on October 31 and November 30 under absorption costing and variable costing. Compare the differences in inventory balances and the differences in operating income. Explain the differences in inventory balances based on absorption costing versus variable costing. Finished Goods Inventory The higher inventory balance under product cost per game is October 31, 2018 November 30, 2018 Absorption Variable Absorption Variable costing costing costing costing is representative of the Under absorption costing, the difference in the whereas under variable costing, the difference in the product cost per game is October November Sales 2,000 units 3,000 units Production 2,900 units 2,900 units Variable manufacturing cost per game 14 $ 14 Sales commission cost per game 5 5 Total fixed manufacturing overhead 11,600 11,600 Total fixed selling and administrative costs 9,500 9,500 Requirements 1. Compute the product cost per game produced under absorption costing and under variable costing. 2. Prepare monthly income statements for October and November, including columns for each month and a total column, using these costing methods: a. absorption costing. b. variable costing. 3. Is operating income higher under absorption costing or variable costing in October? In November? Explain the pattern of differences in operating income based on absorption costing versus variable costing. 4. Determine the balance in Finished Goods Inventory on October 31 and November 30 under absorption costing and variable costing. Compare the differences in inventory balances and the differences in operating income. Explain the differences in inventory balances based on absorption costing versus variable costing