134) The Minler Company began the year 2006 with no inventories of work in process or finished goods.  The company produces a single product, and cost data for the product are given below.

Variable costs:

Direct material$10 per unit

Direct labour15 per unit

Manufacturing overhead6 per unit

Selling expenses4 per unit

Fixed costs:

Manufacturing overhead$50,000 per month

Selling and administrative20,000 per month

During the first three months of 2006, production and sales in units were as follows:

PRODUCTIONSALES

January10,00010,000

February10,0008,000

March        10,00012,000

Total$   30,00030,000

The company uses an actual cost system.  The selling price of the product is $50 per unit.  There were no work in process inventories at the end of each month.

a. Determine the unit cost of production for each month under:

(i)variable costing

(ii)absorption costing

b. Prepare income statements for the three months under:

(i)variable costing

(ii)absorption costing

 

c. If selling prices and costs do not change significantly, what can be said about the relationship of income under absorption costing and variable costing when:

(i)sales equal production

(ii)sales are less than production

(iii)sales are greater than production



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