Great Outdoze, Inc., manufactures high-quality sleeping bags, which sell for $130 each. The variable costs of production are as follows:

Direct material.............................................................................. $40

Direct labor.................................................................................... 22

Variable manufacturing overhead.................................................. 16

Budgeted fixed overhead in 20x4 was $400,000 and budgeted production was 25,000 sleeping bags. The year’s actual production was 25,000 units, of which 22,000 were sold. Variable selling and administrative costs were $2 per unit sold; fixed selling and administrative costs were $60,000.

Required:

1. Calculate the product cost per sleeping bag under

(a) Absorption costing

(b) Variable costing.

2. Prepare operating income statements for the year using

(a) Absorption costing

(b) Variable costing.

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