Problem 2. Rudi Meller obtained a patent on a wall clectronic device und orgmined Meller Company. In order to produse and sell the device. During the first month of operations, the device was very well received on the market, to M. Meller looked forward to a healthy profit from sales. For this reason, he was surprised to see a lon for the month on his income statement. This statement was prepared by his secounting service, which takes great pride in providing its clients with timely financial data. The statement follows: MELLER COMPANY Income Statement Sales (40'000 units) $200'00 0 Less variable experises Variable cost of goods sold $80'000 Selling and administrative expenses 2000 1102000 Contribution margin 90'000 Less fixed expenses Fixed manufacturing overhead $75'000 Selling and administrative expenses 20-000 951000 Net Loss (5000) Mr. Meller is discouraged over the loss sbown for the month, particularly since he has planned to use the statement to encourage investors to purchase stock in the new company. A friend, who is a CPA, insists that the company should be using absorption costing rather than variable costing. He argues that if absorption costing has been used, the company would probably have reported a nice profit for the month Selected cost data related to the product and to the first month of operations follow Units produced 50 000 Units sold 400000 Variable costs per unit: Direct materials S1.00 Direct labor 0.80 Variable manufacturing overhead 020 Variable selling and administrative expenses 0.35 Loto Te Required: 09 2000 100 to 1. Complete the following: (15 marks) Compute the unit product cost under absorption costing. b. Redo the company's income statement for the month using absorption costing c. Reconcile the variable and absorption costing net income figures 2. Was the CPA correct in suggesting that the company really cared a "profit for the month? Explain (10 marks) 3. During the second month of operations, the company again produced 50'000 units but sold 60'000 units. (Assume no change in total fixed costs.) (15 marks) a. Prepare an income statement for the second month using variable costing b. Prepare an income statement for the month using absorption costing c. Reconcile the absorption costing and variable costing net income figures Moth 2 month 40000 units So 000 units