Question No 1: Sandi Scott obtained a patent on a small electronic device and organized Scott Products, Inc., to produce and sell the device. During the first month of operations, the device was very well received on the market, so Ms. Scott looked forward to a healthy profit. For this reason, she was surprised to see a loss for the month on her income statement. This statement was prepared by her accounting service, which takes great pride in providing its clients with timely financial data. The statement follows:

Scott Products Limited Income Statement

Sales (40,000 units) $200,000

Variable expense: Variable cost of goods solde 80,000 Variable selling and administrative expense 30,000 Contribution margin 110,000 Fixed expenses 90,000 Variable Manufacturing overhead 75,000 VAriable Selling and administrative expense 20,000 95,000 Net Operating loss (5,000) *Consists of direct materials, direct labor, and variable manufacturing overhead. Ms. Scott is discouraged over the loss shown for the month, particularly since she had 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 had been used, the company would probably have reported a profit for the month. Selected cost data relating to the product and to the first month of operations follow: 50,000 40,000 $1,0 0.80 Unit produced Units sold Variable cost per unit: Direct materials Direct labor Variable manufacturing overhead Variable Selling and administrative expense Requirements:

a) Compute the unit product cost under Variable costing.

b) Redo the company's income statement for the month using Variable costing.

c) Reconcile the variable and absorption costing net operating income (loss) figures.