Tabletops Products, Inc., has just organized a new division to manufacture and sell specially designed tables using select hardwoods for personal computers. The divisions monthly costs are shown in the schedule below:

Manufacturing costs:
Variable costs per unit:
Direct materials	$	81
Variable manufacturing overhead	$	7
Fixed manufacturing overhead costs (total)	$	193,800
Selling and administrative costs:
Variable		10	% of sales
Fixed (total)	$	140,000

Tabletops Products regards all of its workers as full-time employees and the company has a long-standing no-layoff policy. Furthermore, production is highly automated. Accordingly, the company includes its labor costs in its fixed manufacturing overhead. The tables sell for $325 each.

During the first month of operations, the following activity was recorded:

Units produced	3,800
Units sold	3,040

Required:

1.	Compute the unit product cost under absorption costing and variable costing.

		Unit Product Cost
a.	Absorption costing
b.	Variable costing

2.

Prepare an income statement for the month using absorption costing.

Tabletops Products, Inc.
Absorption Costing Income Statement

3.

Prepare a contribution format income statement for the month using variable costing.

Tabletops Products, Inc.
Variable Costing Income Statement
Variable expenses:
Fixed expenses:

5.

Reconcile the absorption costing and variable costing net operating incomes in (2) and (3) above.

Tabletops Products, Inc.
Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
Variable costing net operating income (loss)
Add (deduct) fixed manufacturing overhead cost deferred in (released from) inventory under absorption costing
Absorption costing net operating income (loss)