Advance Products, Inc., has just organized a new division

Variable costs per unit:
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . $86
Variable manufacturing overhead . . . . . . . . . . $4
Fixed manufacturing overhead costs (total) . . . . $240,000

Selling and administrative costs:
Variable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15% of sales
Fixed (total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $160,000

Units produced . . . . . . . . . . 4,000
Units sold . . . . . . . . . . . . . . 3,200

1. Compute the unit product cost under:
a. Absorption costing.
b. Variable costing.
2. Prepare an income statement for the month using absorption costing.
3. Prepare a contribution format income statement for the month using variable costing.
4. Assume that the company must obtain additional financing. As a member of top management, which of the statements that you have prepared in (2) and (3) above would you prefer to take with you to negotiate with the bank? Why?
5. Reconcile the absorption costing and variable costing net operating incomes in (2) and (3) above.