Linda’s Foods produces frozen meals that it sells for $ 6 each. The company computes a new monthly fixed manufacturing overhead rate based on the planned number of meals to be produced that month. All costs and production levels are exactly as planned. The following data are from Linda’s Foods’ first month in business:

January 2014

Units produced and sold:

Sales.................. 1,000 meals

Production ...............1,200 meals

Variable manufacturing cost per meal...... $ 2

Sales commission cost per meal ........1

Total fixed manufacturing overhead .....660

Total fixed selling and administrative costs ....700

Requirements

1. Compute the product cost per meal produced under absorption costing and under variable costing.

2. Prepare income statements for January 2014 using

a. Absorption costing.

b. Variable costing.

3. Is operating income higher under absorption costing or variable costing in January?