Q3 - 15 marks

Tablette Inc. has just organized a new division to manufacture and sell specially designed computer tables, using select hardwoods. The division's monthly costs are shown in the schedule below:

Manufacturing costs:

Variable costs per unit:

Direct materials

$ 192

Variable manufacturing overhead

$ 17

Fixed manufacturing overhead costs (total)

$ 561,105

Selling and administrative costs:

Variable

15%

of sales

Fixed (total)

$ 272,970

Tablette regards all of its workers as full-time employees, and the company has a long-standing no-layoff policy. Furthermore, production is highly automated. Accordingly, the company includes its labour costs in its fixed manufacturing overhead. The tables sell for $490 each.

During the first month of operations, the following activity was recorded:

Units produced

5,055

Units sold

4,130

Required:

1.Compute the unit product cost under both absorption costing and variable costing.

2.Prepare an income statement for the month using absorption costing.

3.Prepare a contribution format income statement for the month using variable costing.

4.Reconcile the absorption costing and variable costing operating incomes.