Reference no: EM133122790

Question - Neds Entress produces frozen meals which it sells for $14 each. The company uses FIFO inventory costing method and it computes a new monthly fixed manufacturing overhead rate based on the actual number of meals produced that month. All cost and productions level are exactly as planned. The following data are from Ned entrees first two month in business

	January	February
Sales	1600 meals	1900 meals
Production	2000 meals	1600 meals
Variable manufacturing expense per meal	$3	$3
Sales commissions expense per meal	$1	$1
Total fixed manufacturing overhead	$800	$800
Total fixed marketing and administrative expense	$500	$500

Required -

1. Compute the product cost per meal produced under absoprtion costing and variable costing.Do this first for January and then February.

2. Prepare separate monthly income statement for January and February using a. absorption costing b. variable costing.

3. Is operating income higher under absorption costing or variable costing in January? In February? Explain the pattern of differences in operating income based on absorption versus variable costing.