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, Inc. Income Statement
Sales (21,000 units)			$	762,300
Variable expenses:
Variable cost of goods sold	$	245,700
Variable selling and administrative expenses		164,850		410,550
Contribution margin				351,750
Fixed expenses:
Fixed manufacturing overhead		201,600
Fixed selling and administrative expenses		216,000		417,600
Net operating loss			$	( 65,850)

Ms. Scott is discouraged over the loss shown for the month, particularly because 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:

Units produced		24,000
Units sold		21,000
Variable costs per unit:
Direct materials	$	7.30
Direct labor	$	2.90
Variable manufacturing overhead	$	1.50
Variable selling and administrative expenses	$	7.85

Required:

1.	Complete the following:

a.	Compute the unit product cost under absorption costing. (Round your intermediate and final answers to 2 decimal places.)

Unit product cost

$

b.	Redo the company%u2019s income statement for the month using absorption costing. (Input all amounts as positive values except losses which should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places. Round your final answers to the nearest whole number.)

Absorption Costing Income Statement
(Click to select) Selling and administrative expenses Sales Net operating income (loss) Gross margin Cost of goods sold	$
(Click to select) Net operating income (loss) Cost of goods sold Sales Gross margin Selling and administrative expenses
(Click to select) Gross margin Contribution margin
(Click to select) Cost of goods sold Selling and administrative expenses Sales Gross margin Net operating income (loss)
(Click to select) Net operating income Net operating loss	$

c.	Reconcile the variable and absorption costing net operating income (loss) figures. (Loss amounts and amounts to be deducted should be indicated with a minus sign. Round your intermediate calculations to 2 decimal places. Round your final answers to the nearest whole number.)

Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
Variable costing net operating income (loss)	$
(Click to select) Add Deduct: (Click to select) Fixed manufacturing overhead cost deferred in inventory Fixed manufacturing overhead cost released from inventory
Absorption costing net operating income (loss)	$

3.	During the second month of operations, the company again produced 24,000 units but sold 27,000 units. (Assume no change in total fixed costs.)

a.	Prepare a contribution format income statement for the month using variable costing. (Input all amounts as positive values except losses which should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places. Round your final answers to the nearest whole number.)

Variable Costing Income Statement
(Click to select) Net operating income (loss) Fixed selling and administrative expense Variable selling and administrative expense Variable cost of goods sold Sales Contribution margin Fixed manufacturing overhead		$
Variable expenses:
(Click to select) Net operating income (loss) Sales Fixed selling and administrative expense Variable selling and administrative expense Fixed manufacturing overhead Contribution margin Variable cost of goods sold	$
(Click to select) Contribution margin Net operating income (loss) Fixed manufacturing overhead Variable cost of goods sold Fixed selling and administrative expense Variable selling and administrative expense Sales
(Click to select) Gross margin Contribution margin
Fixed expenses:
(Click to select) Sales Fixed manufacturing overhead Variable selling and administrative expense Net operating income (loss) Contribution margin Variable cost of goods sold Fixed selling and administrative expense
(Click to select) Fixed selling and administrative expense Net operating income (loss) Variable selling and administrative expense Contribution margin Fixed manufacturing overhead Sales Variable cost of goods sold
(Click to select) Net operating loss Net operating income		$

b.	Prepare an income statement for the month using absorption costing. (Input all amounts as positive values except losses which should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places. Round your final answers to the nearest whole number.)

Absorption Costing Income Statement
(Click to select) Net operating income (loss) Gross margin Selling and administrative expenses Sales Cost of goods sold	$
(Click to select) Cost of goods sold Sales Selling and administrative expenses Net operating income (loss) Gross margin
(Click to select) Contribution margin Gross margin
(Click to select) Cost of goods sold Net operating income (loss) Gross margin Selling and administrative expenses Sales
(Click to select) Net operating loss Net operating income	$

c.	Reconcile the variable costing and absorption costing net operating incomes. (Loss amounts and amounts to be deducted should be indicated with a minus sign. Round your intermediate calculations to 2 decimal places. Round your final answers to the nearest whole number.)

Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
Variable costing net operating income (loss)	$
(Click to select) Deduct Add: (Click to select) Fixed manufacturing overhead cost released from inventory Fixed manufacturing overhead cost deferred in inventory
Absorption costing net operating income (loss)	$