Nicky's Entrees 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$$ company's first two months in$$ business:

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Part $1$

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

$$4\mathrm{.}40$

$$4\mathrm{.}00$

$$4\mathrm{.}50$

$$4\mathrm{.}00$

Part $2$

Requirement $2$a$.$ Prepare separate monthly income statements for January and for$$ February, using absorption costing.

Nicky's Entrees

Income Statement $($Absorption Costing$)$

Month Ended

January $31$

Sales revenue

Less:

Cost of goods sold

$5000$

Gross profit

$2700$

Less:

Operating expenses

Operating income

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Data table

January

February

Sales. $.........................................$

$1,500$ meals

$1,800$ meals

Production. $....................................$

$2,000$ meals

$1,600$ meals

Variable manufacturing expense per meal. $.........$

$$4$

$$4$

Sales commission expense per meal. $.............$

$$2$

$$2$

Total fixed manufacturing overhead. $..............$

$$800$

$$800$

Total fixed marketing and administrative expenses. $.$

$$600$

$$600$

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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.

pop$-$up content endslevels 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.

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.

Requirement $2$a$.$ Prepare separate monthly income statements for January and for February, using absorption costing.

Nicky's Entrees

Income Statement $($Absorption Costing$)$

Month Ended

Data table

Requirements

Compute the product cost per meal produced under absorption costing and

under variable costing. Do this first for January and then for February.

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.