Murphys Foods produces frozen meals, which it sells for $7 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 companys first two months in business:

The table shows the following data with cost in dollars:

Sales

January: 1,400 meals

February: 1,600 meals

Production

January: 2,000 meals

February: 1,400 meals

Variable manufacturing expense per meal

January: 5

February: 5

Sales commission expense per meal

January: 1

February: 1

Total fixed manufacturing overhead

January: 700

February: 700

Total fixed marketing and administrative expenses

January: 500

February: 500

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 (a) absorption costing and (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.