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Skelter Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $ 121 Units in

Skelter Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price

$

121

Units in beginning inventory

400

Units produced

5,600

Units sold

5,800

Units in ending inventory

200

Variable costs per unit:

Direct materials

$

33

Direct labor

$

49

Variable manufacturing overhead

$

1

Variable selling and administrative expense

$

4

Fixed costs:

Fixed manufacturing overhead

$

140,000

Fixed selling and administrative expense

$

52,200

The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. The company uses LIFO costing.

Required:

Assume the company uses variable costing for internal management purposes. How much is net operating income when variable costing is used?

For financial reporting purposes, the company uses absorption costing. How much is net operating income when absorption costing is used?

Explain the difference in the net operating income numbers computed in parts a and b. Your answer should show the reason for the dollar amount of difference by stating the difference(s) in particular. It is not sufficient to state a general rule that income is higher or lower when either of the methods is used.

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