Quebec Inc. uses a normal absorption costing system in which the overhead rate and variable manufacturing costs have remained unchanged for the last 2 years. Quebec Inc. uses the budgeted production volume of 25,000 units to allocate the fixed overhead rate rather than the actual production volume. The company expenses production volume variance to cost of goods sold in the accounting period in which it occurs. During the current year the following activity occurred:

Budgeted Production Volume 25,000 units

Unit sales 20,000 units

Cost of goods sold $275,000

Production Volume variance $6,000 Unfavorable

Operating income after adjusting for the production volume variance $74,000

Budgeted fixed manufacturing overhead $150,000

Variable selling expense per unit $1.50

Fixed Selling & administrative expenses $15,000

The firm had no beginning or ending work in process inventories.

Instructions:

A)

Assume the company uses Absorption Costing system: Do the following:

1.	Calculate the number of units produced and manufacturing cost per unit. (5 Marks)
2. 3.	Prepare Absorption -costing income statement for the current year. (4 Marks) Reconcile the net incomes under Absorption costing and Normal Absorption costing. (2 Marks)

B)

Assume the company uses Variable Costing system: Do the following:

1.	Calculate the manufacturing cost per unit. (1 Mark)
2. 3.	Prepare Variable -costing income statement for the current year. (6 Marks) Reconcile the net incomes under Absorption costing and Variable costing. (2 Marks)