1. Variable and Absorption Costing

ZKB Company manufactures a unique device that is used by internet users to boost Wi-Fi signals. The following data relates to the first month of operation:

• Beginning inventory: 0 units
• Units produced: 40,000 units
• Units sold: 35,000 units
• Selling price: $120 per unit

Marketing and administrative expenses:

• Variable marketing and administrative expenses per unit: $4
• Fixed marketing and administrative expenses per month: $1,120,000

Manufacturing costs:

• Direct materials cost per unit: $30
• Direct labor cost per unit: $14
• Variable manufacturing overhead cost per unit: $4
• Fixed manufacturing overhead cost per month: $1,280,000

Management is anxious to see the success as well as profitability of newly designed unique booster.

Required:

1. Calculate unit product cost and prepare income statement under variable costing system and absorption costing system.
2. Prepare income statement under two costing system.
3. Prepare a schedule to reconcile the net operating income under variable and absorption costing system.