Ida Company produces a handcrafted musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $845. Selected data for the companys operations last year follow:

Units in beginning inventory	0
Units produced	23,000
Units sold	21,000
Units in ending inventory	2,000
Variable costs per unit:
Direct materials	$ 140
Direct labor	$ 490
Variable manufacturing overhead	$ 62
Variable selling and administrative	$ 17
Fixed costs:
Fixed manufacturing overhead	$ 770,000
Fixed selling and administrative	$ 550,000

Required:

1. Assume that the company uses absorption costing. Compute the unit product cost for one gamelan. (Round your intermediate calculations and final answer to the nearest whole dollar amount.)

2. Assume that the company uses variable costing. Compute the unit product cost for one gamelan.

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High Country, Incorporated, produces and sells many recreational products. The company has just opened a new plant to produce a folding camp cot that will be marketed throughout the United States. The following cost and revenue data relate to May, the first month of the plants operation:

Beginning inventory	0
Units produced	36,000
Units sold	31,000
Selling price per unit	$ 81
Selling and administrative expenses:
Variable per unit	$ 3
Fixed (per month)	$ 555,000
Manufacturing costs:
Direct materials cost per unit	$ 16
Direct labor cost per unit	$ 6
Variable manufacturing overhead cost per unit	$ 4
Fixed manufacturing overhead cost (per month)	$ 540,000

Management is anxious to assess the profitability of the new camp cot during the month of May.

Required:

1. Assume that the company uses absorption costing.

a. Calculate the unit product cost.

b. Prepare an income statement for May.

2. Assume that the company uses variable costing.

a. Calculate the unit product cost.

b. Prepare a contribution format income statement for May.

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Tami Tyler opened Tamis Creations, Incorporated, a small manufacturing company, at the beginning of the year. Getting the company through its first quarter of operations placed a considerable strain on Ms. Tylers personal finances. The following income statement for the first quarter was prepared by a friend who has just completed a course in managerial accounting at State University.

Tamis Creations, Incorporated Income Statement For the Quarter Ended March 31
Sales (28,800 units)		$ 1,152,000
Variable expenses:
Variable cost of goods sold	$ 480,960
Variable selling and administrative	195,840	676,800
Contribution margin		475,200
Fixed expenses:
Fixed manufacturing overhead	286,200
Fixed selling and administrative	202,500	488,700
Net operating loss		$ (13,500)

Ms. Tyler is discouraged over the loss shown for the quarter, particularly because she had planned to use the statement as support for a bank loan. Another friend, a CPA, insists that the company should be using absorption costing rather than variable costing and argues that if absorption costing had been used the company probably would have reported at least some profit for the quarter.

At this point, Ms. Tyler is manufacturing only one producta swimsuit. Production and cost data relating to the swimsuit for the first quarter follow:

Units produced	31,800
Units sold	28,800
Variable costs per unit:
Direct materials	$ 7.20
Direct labor	$ 7.70
Variable manufacturing overhead	$ 1.80
Variable selling and administrative	$ 6.80

Required:

1. Complete the following:

a. Compute the unit product cost under absorption costing.

b. What is the companys absorption costing net operating income (loss) for the quarter?

c. Reconcile the variable and absorption costing net operating income (loss) figures.

3. During the second quarter of operations, the company again produced 31,800 units but sold 34,800 units. (Assume no change in total fixed costs.)

a. What is the companys variable costing net operating income (loss) for the second quarter?

b. What is the companys absorption costing net operating income (loss) for the second quarter?

c. Reconcile the variable costing and absorption costing net operating incomes for the second quarter.

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During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows:

	Year 1	Year 2
Sales (@ $63 per unit)	$ 1,197,000	$ 1,827,000
Cost of goods sold (@ $32 per unit)	608,000	928,000
Gross margin	589,000	899,000
Selling and administrative expenses*	311,000	341,000
Net operating income	$ 278,000	$ 558,000

* $3 per unit variable; $254,000 fixed each year.

The companys $32 unit product cost is computed as follows:

Direct materials	$ 6
Direct labor	9
Variable manufacturing overhead	3
Fixed manufacturing overhead ($336,000 24,000 units)	14
Absorption costing unit product cost	$ 32

Production and cost data for the first two years of operations are:

	Year 1	Year 2
Units produced	24,000	24,000
Units sold	19,000	29,000

Required:

1. Using variable costing, what is the unit product cost for both years?

2. What is the variable costing net operating income in Year 1 and in Year 2?

3. Reconcile the absorption costing and the variable costing net operating income figures for each year.