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Marty's Entrees produces frozen meals, which it sells for $10 each. The company uses the FIFO inventory costing method, and it computes a new monthly
Marty's Entrees 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 exactly as planned. The following data are from the company's first two months in business: (Click the icon to view the data.) Read the requirements Less A Data Table Requirements Requirement 2b. Prepare Marty's Entrees' January and February income statements using variable costing. February January 1,400 meals Sales. 1,600 meals Marty's Entrees Contribution Margin Income Statement (Variable Costing) Month Ended January 31 1,400 meals 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. $4 February 28 Production... 2,000 meals Variable manufacturing expense per meal. $4 Sales commission expense per meal. $2 Total fixed manufacturing overhead $700 Total fixed marketing and administrative expenses .. $500 $2 Less: $700 $500 Print Done Print Done Less: Contribution margin Cost of goods sold Fixed expenses Fixed manufacturing overhead Fixed operating expenses Gross profit Require Operating expenses In Janua Operating income Sales revenue Absorpti Variable cost of goods sold Variable expenses In Febru Variable operating expenses ion costing or variable costing in January? In February? Explain the pattern of differences in operating income based on absorption costing versus variable costing. variable costing income. This is because units produced were units sold. costs in the units of ending inventory. These costs will not be V until those units are sold. Deferring these costs to the future January's absorption costing income. variable costing operating income. This is because units produced were units sold for the month
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