Styles Paragraph QUESTION ONE: Absorption and Variable Costing: Prepare and Reconcile Variable costing Statements Audiophonics Limited manufactures and sells high-quality and durable ear buds for use with personal electronics that are custom moulded to each customer's ear. Cost data for the product follows: Variable costs per unit: Direct materials Direct labour Variable factory overhead Variable selling and administrative Total variable costs per unit $12 24 8 6 $50 Fixed costs per month Fixed manufacturing overhead Fixed selling and administrative Total fixed costs per month $240,000 180.000 $420,000 The product sells for $80 per unit. Production and sales data for May and June, the first two months of operations, are as follows: Units Produced Units Sold May 15,000 13,000 June 15,000 17,000 Income statements prepared by the Accounting Department using absorption costing are presented below: Income statements prepared by the Accounting Department using absorption costing are presented below May June $1,040,000 $1,360,000 Sales Cost of goods sold Beginning inventory Add cost of goods manufactured Goods available for sale Less ending inventory Cost of goods sold Gross margin Selling and administrative expenses Operating income 0 900.000 900,000 120,000 780,000 260,000 258,000 $2.000 120,000 900,000 1.020.000 0 1.020.000 340,000 282.000 $58.000 REQUIRED: 1. Determine the unit cost under a. Absorption costing. b. Variable costing. 2. Prepare variable costing income statements for May and June using the contribution approach. 3. Reconcile the variable costing and absorption costing operating income figures. 4. The company's Accounting Department has determined the break-even point to be 14,000 units per month, computed as follows: = 14,000 units Fixed cost per month Unit contribution margin $420.000 $30 per unit On receiving this figure, the president commented, "There's something peculiar here. The comptroller says that the break-even point is 14,000 units per month Yet we sold only 13,000 units in May, and the income statement we received showed a $2,000 profit. Which figure do we believe?" Prepare a brief explanation of what happened on the May income statement