CHAPTER 9 INVENTORY COSTING AND CAPACITY ANALYSIS Exercise (01): Variable and absorption costing, explaining operating-income differences. Nascar Motors assembles and sells motor vehicles and uses standard costing. Actual data relating to April and May 2011 are as follows: Unit data: Beginning inventory Production Sales Variable costs: Manufacturing cost per unit produced Fixed costs: Operating (marketing) cost per unit sold Manufacturing costs Operating (marketing) costs April May 0 150 500 400 350 520 $10,000 $10,000 3,000 3,000 $2,000,000 $2,000,000 600,000 600,000 The selling price per vehicle is $24,000. The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is 500 units. There are no price, efficiency, or spending variances. Any production-volume variance is written off to cost of goods sold in the month in which it occurs. Required: 1. Prepare April and May 2011 income statements for Nascar Motors under: (a) variable costing and (b) absorption costing. 2. Prepare a numerical reconciliation and explanation of the difference between operating income for each month under variable costing and absorption costing.