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Herro Corporation began operations in July and manufactured 40,000 units during the month with the following unit costs: Direct materials $7.00 Direct labor 4.00 Variable

Herro Corporation began operations in July and manufactured 40,000 units during the month with the following unit costs:

Direct materials $7.00

Direct labor 4.00

Variable overhead 3.00

Variable marketing cost 3.00

Total fixed factory overhead is $400,000 per month. During July, 35,000 units were sold at a price of $40, and fixed marketing and administrative expenses were $150,000.

Required:

  1. Calculate the unit product cost of each unit using absorption costing and variable costing.
  2. Prepare a variable costing income statement for Herro Corporation for the month of July.
  3. Explain how variable costing differs from absorption costing.

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