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Problem 8-15 Prepare and Reconcile Variable Costing Statements [LO1, LO2, LO3, LO4]

Audiophonics Limited manufactures and sells high-quality and durable ear buds for use with personal electronics that are custom moulded to each customers ear. Cost data for the product follow:

Variable costs per unit:
Direct materials	$	7
Direct labour		17
Variable factory overhead		11
Variable selling and administrative		7
Total variable costs per unit	$	42
Fixed costs per month:
Fixed manufacturing overhead	$	252,000
Fixed selling and administrative		168,000
Total fixed cost per month	$	420,000

The product sells for $64 per unit. Production and sales data for May and June, the first two months of operations, are as follows:

	Units Produced	Units Sold
May	21,000	16,000
June	21,000	26,000

Income statements prepared by the Accounting Department using absorption costing are presented below:

	May			June
Sales	$	1,024,000		$	1,664,000
Cost of goods sold:
Beginning inventory		0			235,000
Add cost of goods manufactured		987,000			987,000
Goods available for sale		987,000			1,222,000
Less ending inventory		235,000			0
Cost of goods sold		752,000			1,222,000
Gross margin		272,000			442,000
Selling and administrative expenses		280,000			350,000
Operating income	$	(8,000)		$	92,000