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Larry's Foods produces frozen meals, which it sells for $10 each. The company uses the FIFO inventory costing method, and it computes a new monthly
Larry's Foods produces frozen meals, which it sells for $10 each. The company uses the FIFO inventory costing method, and it computes a new monthly fixed manufacturing overhead rate based on the actual number of meals produced that month. All costs and production levels are exacty as planned. The following data are from the company's first two months in business: EEE (Click the lcon to view the data.) Requirements Compute the product cost per meal produced under absorption costing and under variable costing. Do this first for January and then for February. 2. Prepare separate monthly income statements for January and for February, using the following: a. Absorption costing b. Variable costing. Is operating income higher under absorption costing or variable costing in January? In February? Explain the pattern of differences in operating income based on absorption costing versus variable costing. 1 3. Absorption Absorption Variable Variable costing costing Costing Costing Total product cost 3.35 3.00 3.50 $ 3.00 Requirement 2a. Prepare separate monthly income statements for January and for February, using abscrotion costing. Larry's Foods Data Table Income Statement (Absorption Costing) Month Ended January 31 February 28 January February Sales revernue 15,000 18000 1,800 meals Sales 1,500 meals 6300 5,025 2.000 meals Cost of goods sold Production 1,400 meals Less: 11700 Gross profit Variable manufacturing expense per meal. 9,975 3 S 3 3,300 Sales commission expense.par.meal $ 2 S 2 Less: Operating expenses $ Total fixed manufacturing overbead 700 S 700 6,675 Operating income Total fixed.marketing and.administrative expenses 300 S 300 Enter any number in the edit fields and then click Check
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