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Absorption and Variable Costing with Over- and Underapplied Overhead Flaherty, Inc, has just completed its first year of operations. The unit costs on a normal costing basis are as follows: Manufacturing costs (per unit): Direct materials (3 lbs. @ 1.40) $4.20 Direct labor (0.4 hr. @ 14.50) 5.80 Variable overhead (0.4 hr. 5.00) 2.00 Fixed overhead (0.4 hr. 8.00) 3.20 Total 15.20 Selling and administrative costs: Variable $1.50 per unit 220,000 Fixed During the vear, the company had the following activity 26,500 Units produced 23,850 Units sold $34 Unit selling price 10,600 Direct labor hours worked Actual fixed overhead was $12,600 less than budgeted fixed overhead. Budgeted variable overhead was $4,000 less than the actual variable overhead. T company used an expected actual activity level of 10,600 direct labor hours to compute the predetermined overhead rates. Any overhead variances are closed to Cost of Goods Sold. Required Required: 1. Compute the unit cost using (a) absorption costing and (b) variable costing. Unit Cost Absorption costing Variable costing 2. Prepare an absorption-costing income statement. Round your answers to the nearest cent. Flaherty, Inc. Absorption-Costing Income Statement For the First Year of Operations Less: Gross profit Operating income 3. Prepare a variable-costing income statement. Round your answers to the nearest cent Flaherty, Inc Operating income 3. Prepare a variable-costing income statement. Round your answers to the nearest cent. Flaherty, Inc Variable-Costing Income Statement For the First Year of Operations Add: Contribution margin Less: Operating income 4. Reconcile the difference between the two income statements. V than variable costing. The absorption costing generates an income