PROBLEM $8-15$

Prepare and Reconcile Variable Costing Statements $[$ LO$1,$ LO$2,$ LO$3,$ LO$4]$

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

$\backslash$table$[[$Variable costs per unit:,$12],[$Direct materials,$24],[$Direct labour,$8],[$Variable factory overhead,$6],[$Variable selling and administrative,$50],[$Total variable costs per unit,$PROBLEM $8-15$

Prepare and Reconcile Variable Costing Statements $[$ LO$1,$ LO$2,$ LO$3,$ LO$4]$

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

$\backslash$table$[[$Variable costs per unit:,$12],[$Direct materials,$24],[$Direct labour,$8],[$Variable factory overhead,$6],[$Variable selling and administrative,$50],[$Total variable costs per unit,$Required:

Determine the unit product cost under

a$.$ Absorption costing.

b$.$ Variable costing.

Prepare variable costing income statements for May and June using the contribution approach.

Reconcile the variable costing and absorption costing operating income figures.

The company's Accounting Department has determined the break$-$even point to be $14,000$ units per month, computed as follows:

$\frac{\text{F}\text{i}\text{x}\text{e}\text{d}cost\text{p}\text{e}\text{r}\text{m}\text{o}\text{n}\text{t}\text{h}}{\text{U}\text{n}\text{i}\text{t}\text{c}\text{o}\text{n}\text{t}\text{r}\text{i}\text{b}\text{u}\text{t}\text{i}\text{o}\text{n}\text{m}\text{a}\text{r}\text{g}\text{i}\text{n}}=\frac{\text{\$}420,000}{\text{\$}30\text{p}\text{e}\text{r}\text{u}\text{n}\text{i}\text{t}}=14,000$ units

On receiving this figure, the president commented, "There's something peculiar here. The controller says that the break$-$even point is

$14,000$ units per month. Yet we sold only $13,000$ units in May, and the income statement we received showed a $$2,000$ profit. Which

figure do we believe?" Prepare a brief explanation of what happened on the May income statement.