Skinny Dippers, Inc., produces nonfat frozen yogurt which it sells to restaurants and ice cream shops. The product is sold in 10-gallon containers, which have the following price and variable costs.

Sales price............................................................................................ $30

Direct material...................................................................................... 10

Direct labor............................................................................................ 4

Variable overhead................................................................................. 6

Budgeted fixed overhead in 20x4, the company’s first year of operations, was $600,000. Actual production was 150,000 10-gallon containers, of which 125,000 were sold. Skinny Dippers, Inc. incurred the following selling and administrative expenses.

Fixed........................................................................... $100,000 for the year

Variable....................................................................... $2 per container sold

Required:

1. Compute the variable product cost per container of frozen yogurt under

(a) Variable costing

(b) Absorption costing.

2. Prepare operating income statements for 20x4 using

(a) Absorption costing

(b) Variable costing.

3. Reconcile the operating income reported under the two methods by analyzing the two key places where the income statements differ.

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

5. Build a spreadsheet: Construct an Excel spreadsheet to solve all of the preceding requirements. Show how the solution will change if the following information changes: the selling price and direct-material cost per unit are $32 and $9, respectively.