Canada Brewers Ltd. has just created a new division to manufacture and sell single-cup coffee makers under licence from a major single-cup coffee producer. The facility is highly auto- mated and so has high monthly fixed costs, as shown in the following schedule of budgeted monthly costs. This schedule was prepared based on an expectation of a monthly production volume of 1,500 units. During August, the following activity was recorded:

Required:
1. Prepare an income statement for the month ended August 31, under absorption costing.
2. Prepare an income statement for the month ended August 31, under variable costing.
3. Beginning with absorption costing, reconcile the absorption costing and variable costing income figures for the month.
4. What are some of the arguments in favour of using variable costing? What are some of the arguments in favour of using absorption costing?

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Units produced ... Units sold... Selling price per unit 1,500 1,200 $55 Manufacturing costs Variable cost per unit: Direct material.... Direct labour... Variable overhead..... Total fixed overhead.. Selling and administrative costs: Variable.... Fixed .... $10 $30,000 5% of sales 8,000 .....