Reference no: EM132610520

Silvanna Company's absorption costing income statements for the last two years are presented below:

.....................................................................................Year 1..............................................Year 2

Sales.......................................................................P70,000.........................................P90,000

Less cost of goods sold:

Beginning inventory.................................................0....................................................6,000

Add cost of goods manufactured...............48,000............................................48,000

Goods available for sale...................................48,000...........................................54,000

Less ending inventory........................................6,000..................................................0

Cost of goods sold.............................................42,000............................................54,000

Gross margin..........................................................28,000..........................................36,000

Less selling & admin. expenses....................25,000............................................31,000

Net operating income........................................P3,000.............................................P5,000

Data on units produced and sold in each of these years are given below:

..........................................................................................Year 1...............................................Year 2

Units in beginning inventory...................................0.....................................................1,000

Units produced........................................................8,000................................................8,000

Units sold....................................................................7,000................................................9,000

Fixed factory overhead totaled P16,000 in each year. This overhead was applied to products at a rate of P2 per unit. Variable selling and administrative expenses were P3 per unit sold.

Question 1: Compute the unit product cost in each year under variable costing.

Question 2: Prepare new income statements for each year using variable costing.

Question 3: Reconcile the absorption costing and variable costing net operating income for each year.