Great Outdoze Company manufactures sleeping bags, which sell for $65.20 each. The variable costs of production are as follows:

Direct material	$	19.50
Direct labor		10.90
Variable manufacturing overhead		6.40

Budgeted fixed overhead in 20x1 was $197,100 and budgeted production was 27,000 sleeping bags. The years actual production was 27,000 units, of which 24,800 were sold. Variable selling and administrative costs were $1.90 per unit sold; fixed selling and administrative costs were $21,000. Required: 1. Calculate the product cost per sleeping bag under (a) absorption costing and (b) variable costing. 2-a. Prepare an operating income statement for the year using absorption costing. 2-b. Prepare an operating income statement for the year using variable costing. 3. Reconcile reported operating income under the two methods using the shortcut method.

Outback Corporation manufactures tactical LED flashlights in Brisbane, Australia. The firm uses an absorption costing system for internal reporting purposes; however, the company is considering using variable costing. Data regarding Outbacks planned and actual operations for 20x1 follow:

	Budgeted Costs
	Per Unit				Total				Actual Costs
Direct material	$	12.10			$	1,681,900			$	1,585,100
Direct labor		9.30				1,292,700				1,218,300
Variable manufacturing overhead		4.60				639,400				602,600
Fixed manufacturing overhead		4.10				569,900				577,900
Variable selling expenses		7.30				1,014,700				883,300
Fixed selling expenses		7.90				1,098,100				1,098,100
Variable administrative expenses		2.80				389,200				338,800
Fixed administrative expenses		2.70				375,300				381,300
Total	$	50.80			$	7,061,200			$	6,685,400

	Planned Activity				Actual Activity
Beginning finished-goods inventory in units		43,000				43,000
Sales in units		139,000				121,000
Production in units		139,000				131,000

The budgeted per-unit cost figures were based on Outback producing and selling 139,000 units in 20x1. Outback uses a predetermined overhead rate for applying manufacturing overhead to its product. A total manufacturing overhead rate of $8.70 per unit was employed for absorption costing purposes in 20x1. Any overapplied or underapplied manufacturing overhead is closed to the Cost of Goods Sold account at the end of the year. The 20x1 beginning finished-goods inventory for absorption costing purposes was valued at the 20x0 budgeted unit manufacturing cost, which was the same as the 20x1 budgeted unit manufacturing cost. There are no work-in-process inventories at either the beginning or the end of the year. The planned and actual unit selling price for 20x1 was $70.90 per unit. Required: Was Outbacks 20x1 operating income higher under absorption costing or variable costing? Also, compute the following: 1. The value of Outback Corporations 20x1 ending finished-goods inventory under absorption costing. 2. The value of Outback Corporations 20x1 ending finished-goods inventory under variable costing. 3. The difference between Outback Corporations 20x1 reported operating income calculated under absorption costing and calculated under variable costing.

Advanced Technologies (AT) produces two compression machines that are popular with manufacturers of plastics: no. 165 and no. 172. Machine no. 165 has an average selling price of $28,800, whereas no. 172 typically sells for approximately $26,900. The company is very concerned about quality and has provided the following information:

	No. 165			No. 172
Number of machines produced and sold		100			170
Warranty costs:
Average repair cost per unit	$	840		$	290
Percentage of units needing repair		65	%		10	%
Reliability engineering at $120 per hour		1,570	hours		1,970	hours
Rework at AT's manufacturing plant:
Average rework cost per unit	$	1,840		$	1,540
Percentage of units needing rework		30	%		20	%
Manufacturing inspection at $50 per hour		270	hours		440	hours
Transportation costs to customer sites to fix problems	$	28,300		$	14,400
Quality training for employees	$	33,800		$	48,800

Required: 1. Classify the preceding costs as prevention, appraisal, internal failure, or external failure. 2-a. Using the classifications in requirement 1, compute AT's quality costs for machine no. 165 in dollars and as a percentage of sales revenues. 2-b. Using the classifications in requirement 1, compute AT's prevention, appraisal, internal failure, and external failure costs as a percentage of total quality costs. 3-a. Using the classifications in requirement 1, compute AT's quality costs for machine no. 172 in dollars and as a percentage of sales revenues. 3-b. Using the classifications in requirement 1, compute AT's prevention, appraisal, internal failure, and external failure costs as a percentage of total quality costs. 4. Is the company "investing its quality expenditures differently for the two machines?