Reference no: EM133074536

Question - Absorption, Variable, and Throughput costing - ARME Inc produces trail mix packaged for sale in convenience stores across Canada. At the beginning of April, ARME has no inventory of the trail mix. Demand for the next three months is expected to remain constant at 50,000 bag per month. ARME plans to produce 50,000 in April. However, many of the employees take vacation in June, so ARME plans to produce 70,000 bags in May and only 30,000 bags in June.

Costs for the three months are expected to remain unchanged. The costs and revenues for April, May, and June are expected to be:

Sales revenue $6.00 per bag

Direct material cost $0.80 per bag

Direct manufacturing cost $0.45 per bag

Variable manufacturing overhead cost $0.30 per bag

Variable selling cost $0.15 per bag

Fixed manufacturing overhead cost $105,000 per month

Fixed administrative costs $35,000 per month

Suppose the actual costs, market demand, and levels of production for April, May, and June are expected.

Required -

1. Compute operating income for April, May, and June under variable costing.

2. Compute operating income for April, May and June under absorption costing. Assume that the denominator level for each month's expected level of output.