Linden Company manufactures and sells a single product. Cost data for the product follow: Variable costs per unit: Direct materials $6 Direct labor 12 Variable factory overhead 4 Variable selling and administrative 3 Total variable costs per unit $25 Fixed costs per month: Fixed manufacturing overhead $ 240,000 Fixed selling and administrative 180,000 Total fixed cost per month $ 420,000 The product sells for $40 per unit. Production and sales data for May and June, the first two months of operations, are as follows: Units Produced Units Sold May 30,000 26,000 June 30,000 34,000 Income statements prepared by the accounting department, using absorption costing, are presented below: May June Sales $ 1,040,000 $ 1,360,000 Cost of goods sold 780,000 1,020,000 Gross margin 260,000 340,000 Selling and administrative expenses 258,000 282,000 Net operating income $ 2,000 $ 58,000 Required: 1. Determine the unit product cost under absorption costing and variable costing. Unit Product Cost Absorption costing Variable costing 2. Prepare contribution format variable costing income statements for May and June. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.) Variable Costing Income Statement May June Sales $ $ Variable expenses: Variable cost of goods sold Variable selling and administrative expenses Total variable expenses Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative expenses Total fixed expenses Net operating income (loss) $ $ 3. Reconcile the variable costing and absorption costing net operating incomes. (Loss amounts and amounts to be deducted should be indicated with a minus sign. Omit the "$" sign in your response.) Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes May June Variable costing net operating income (loss) $ $ Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing Absorption costing net operating income (loss) $ $ Explanation: 1. Absorption Costing Variable Costing Direct materials $ 6 $ 6 Direct labor 12 12 Variable manufacturing overhead 4 4 Fixed manufacturing overhead ($240,000 ÷ 30,000 units) 8 - Unit product cost $ 30 $ 22 2. May June Variable cost of goods sold @ $22 per unit $ 572,000 $ 748,000 Variable selling and administrative expenses @ $3 per unit $ 78,000 $ 102,000 3. Fixed manufacturing overhead cost deferred in inventory under absorption costing (4,000 units × $8 per unit) = $32,000 Fixed manufacturing overhead cost released from inventory under absorption costing (4,000 units × $8 per unit) = $(32,000)

Linden Company manufactures and sells a single product. Cost data for the product follow:

Variable costs per unit:
Direct materials		$6
Direct labor		12
Variable factory overhead		4
Variable selling and administrative		3
Total variable costs per unit		$25
Fixed costs per month:
Fixed manufacturing overhead	$	240,000
Fixed selling and administrative		180,000
Total fixed cost per month	$	420,000

The product sells for $40 per unit. Production and sales data for May and June, the first two months of operations, are as follows:

	Units Produced	Units Sold
May	30,000	26,000
June	30,000	34,000

Income statements prepared by the accounting department, using absorption costing, are presented below:

	May		June
Sales	$	1,040,000	$	1,360,000
Cost of goods sold		780,000		1,020,000
Gross margin		260,000		340,000
Selling and administrative expenses		258,000		282,000
Net operating income	$	2,000	$	58,000

Required:

1.	Determine the unit product cost under absorption costing and variable costing.

		Unit Product Cost
Absorption costing
Variable costing

2.	Prepare contribution format variable costing income statements for May and June. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

Variable Costing Income Statement
	May	June
Sales	$	$
Variable expenses:
Variable cost of goods sold
Variable selling and administrative expenses
Total variable expenses
Contribution margin
Fixed expenses:
Fixed manufacturing overhead
Fixed selling and administrative expenses
Total fixed expenses
Net operating income (loss)	$	$

3.	Reconcile the variable costing and absorption costing net operating incomes. (Loss amounts and amounts to be deducted should be indicated with a minus sign. Omit the "$" sign in your response.)

Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
	May	June
Variable costing net operating income (loss)	$	$
Add (deduct) fixed manufacturing overhead deferred in   (released from) inventory under absorption costing
Absorption costing net operating income (loss)	$	$

Explanation: 1.

	Absorption Costing		Variable Costing
Direct materials	$	6	$	6
Direct labor		12		12
Variable manufacturing overhead		4		4
Fixed manufacturing overhead   ($240,000 ÷ 30,000 units)		8		-
Unit product cost	$	30	$	22

2.

	May		June
Variable cost of goods sold @ $22 per unit	$	572,000	$	748,000
Variable selling and administrative expenses @ $3 per unit	$	78,000	$	102,000

3.

Fixed manufacturing overhead cost deferred in inventory under absorption costing (4,000 units × $8 per unit) = $32,000

Fixed manufacturing overhead cost released from inventory under absorption costing (4,000 units × $8 per unit) = $(32,000)