Mario's Foods produces frozen meals, which it sells for $9 each. The company uses the FIFO invenotry costing method, and it computes a new monthy fixed manufactoring overhead rate based on the actual number of meals produced that month. All cost and production levels are exactly as planned. The following data are from the company's first two months in business:

	JAN	FEB
Sales........................	1,600 meals	1,900 meals
Production...............	2,000 meals	1,600 meals
Variable manufactoring expense per meal	$5	$5
Sales commision expense per meal	$2	$2
Total fixed manfucuring overhead	$800	$800
Total fixed makerting and administrative expenses	$700	$700

Requirements:

1. Compute the product cost per meal produced underabsorption costing and under variable costing. Do this first for January, and then for Febuary.

2. Prepare seperate monthly income statements for January and for February, using the following:

a. Absorrption 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.

Requirement 1. Compute the product cost per meal under absortion costing and under variable costing. Do this first for January and the Febuary

	JAN		FEB
	Absorbtion Costing	Variable Costing	Absorption Costing	Variable Costing
Total Product cost

Requirement 2a. Prepare seperate monthly income statements for January and for Feb, using absorption costing

Mario's Foods o

Contribution Margin Income Statement (variable costing)

Month Ended

		Jan 31	Feb 31
Less

Requirement 2b. Prepare Marios Foods Jan and Feb income Statement using variable costing

Requirement 3. Is operating income higher under absorption costing or variable costing in Jan? In Feb? Explain the pattern of differences in operating income based on absorption costing versus variable costing.

In Jan, absorption costing operating income_____(equals,exceeds or less than) variable costing income. This is because units produced ______(equal to, greater than, less than) units were sold.

Absorption costing some of _____(Jan or Feb) __________(fixed manufacturing overhead, nonmaufactoring, variable maufactoring overhead) costs in the units of ending inventory. These cost will not be_____(capitalized, expensed, paid in for cash) until those are sold. Deferring these _________ ( fixed manufactoring overhead, nonmanufactoring, variable manufactoring overhead)cost to the future _______ (Increases, Decreases)January's absoprtion costing income.

In Feb, absorption costing operating income ________ (equals, exceeds, less than) variable costing operating income. This is because units produced were _____ (equal to, greather than, less than)units sold for the month.

As inventory______(increases, declines) as was the case in this February, January's ________(fixed manufactoring overhead, nonmanufactoring, variable manufactoring overhead) costs that absorption costing assigned to that inventory are expensed in _______(Jan, Feb). This _______ ( increases, decreases)Febuary's absorption costing income.