Required:
1. Complete the following:
a. Compute the unit product cost under absorption costing.
b. Redo the company’s income statement for the month using absorption costing.
c. Reconcile the variable and absorption costing net operating income (loss) figures.
2. Was the CPA correct in suggesting that the company really earned a “profit” for the month?
Explain.
3. During the second month of operations, the company again produced 50,000 units but sold
60,000 units. (Assume no change in total fixed costs.)
a. Prepare a contribution format income statement for the month using variable costing.
b. Prepare an income statement for the month using absorption costing.
c. Reconcile the variable costing and absorption costing net operating incomes.