Larry's Foods produces frozen meals, which it sells for $9 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 exactly as planned. The following data are from the company's first two months in business:

Larry's Foods produces frozen meals, which it sells for $9 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 exactly as planned. The following data are from the company's first two months in business: (Click the icon to view the data.) Requirements 1. 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. 3. 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. i Data Table January February Sales 1,900 meals 1,500 meals 2,000 meals Production 1,600 meals Variable manufacturing expense per meal $ 3 $ 3 Sales commission expense per meal 2 $ 2 $ 800 $ 800 Total fixed manufacturing overhead Total fixed marketing and administrative expenses $ 400 $ 400 Print Done Requirement 1. Compute the product cost per meal produced under absorption costing and under variable costing. Do this first for January and then for February. January February Absorption Variable Absorption Variable costing costing costing costing Total product cost 3.40 3 3.50 3 Requirement 2a. Prepare separate monthly income statements for January and for February, using absorption costing. Larry's Foods Income Statement (Absorption Costing) Month Ended January 31 February 28 Sales revenue 13500 17100 5100 Less: Cost of goods sold Gross profit Less: Operating expenses Operating income Requirement 2b. Prepare Larry's Foods' January and February income statements using variable costing. Larry's Foods Contribution Margin Income Statement (Variable Costing) Month Ended January 31 February 28 Less: Less: Requirement 3. 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. In January, absorption costing operating income variable costing income. This is because units produced were units sold. costs in the units of ending inventory. These costs will not be until those units are sold. Deferring these Absorption costing defers some of costs to the future January's absorption costing income. In February, absorption costing operating income variable costing operating income. This is because units produced were units sold for the month. as was the case in this February, January's costs that absorption costing assigned to that inventory are expensed in V This February's absorption costing 5 As inventory income