White Water Rafting Company manufactures kayaks, which sell for $565 each. The variable costs of production (per unit) are as follows:

Direct Material $ 200

Direct labor 110

Variable manufacturing overhead 80

Budgeted fixed overhead in 20x1 was $400,000 and budgeted production was 50,000 kayaks. The years actual production was 50,000 units, of which 47,000 were sold. Variable selling and administrative costs were $5 per unit sold; fixed selling and administrative costs were $75,000.

Required:

1. Calculate the product cost per kayak under (a) absorption costing and (b) variable costing.

2. Prepare operating income statements for the year using (a) absorption costing and (b) variable costing.

3. Reconcile reported operating income under the two methods using the shortcut method.