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(L. OBJ. 2, 3) Preparing variable and absorption costing income statements, and identifying pros and cons [35-40 minutes Mp3 Musico Co. manufactures mp3 players. The
(L. OBJ. 2, 3) Preparing variable and absorption costing income statements, and identifying pros and cons [35-40 minutes Mp3 Musico Co. manufactures mp3 players. The company had beginning inventory of 1,000 mp3 players. These players had $30 each in variable costs per player and $2 each in fixed manufacturing costs per player. The following data are from the com- pany's production records for two months of 2011: Direct materials cost per mp3 player Direct labor cost per mp3 player Variable manufacturing overhcad cost per mp3 player Total fixed manufacturing overhead costs Total fixed selling and administrative costs Number of mp3 players produced Number of mp3 players sold Sale price per mp3 player June 2011 $ 5.00 $ 14.00 10.00 $70,000 $20,000 35,000 34,800 $ 40 July 2011 $ 5.00 $ 14.00 10.00 $70,000 $20,000 40,000 40,300 $ 40 Requirements 1. Assuming a FIFO cost flow, compute the product cost per mp3 player produced 2. Prepare monthly income statements for June and July, using 3. Is operating income higher under absorption cos under absorption costing and under variable costin a. absorption costing. b. variable costing. In July? Give two reasons why and explain the pattern of differences in ing income based on absorption costing versus variable costing ting or variable costing in June operat
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