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19 3 ChairMaster began operations on January 1, 2018. During the first year of operations the company 4 produced 25,000 units and sold 21,000 units. The second year had an increase in unit sales of 20% 5 even though production dropped by 1,000 units. The company maintained the same unit selling 6 price of $70 for both years. In 2018, direct material cost per unit and direct labour cost per unit were 7 $10 and $15 respectively. Variable overhead costs were constant during both years at $5 per unit 8 The fixed manufacturing overhead cost in 2018 was $75.000. In 2019, the fixed manufacturing overhead 9 cost increased by $6,600 Fixed selling and administrative cost were constant for both years at 10 $56,000. The direct material cost per unit in 2019 was $12 and the direct labour cost in 2019 was $14 11 Variable selling and administrative expenses increased from $9 per unit in 2018 to $10 per unit in 2019. 12 13 Following is the income statement for 2019 prepared by the assistant management accountant using the 14 above information, and assuming use of FIFO: 15 16 ChairMaster 17 INCOME STATEMENT 18 FOR THE YEAR ENDED DECEMBER 31, 2019 Sales $1,764,000 20 Cost of goods sold: 21 Opening inventory $132.000 22 Cost of goods manufactured 825,600 23 Cost of goods available for sale 957600 24 Ending inventory 96,320 25 Cost of goods sold: 861,280 26 Gross profit 902,720 27 Selling and administrative 308,000 28 Operating income $594,720 29 30 REQUIRED: 31 1. Compute the unit manufacturing cost for both years using Absorption costing, (3 marks) 32 33 2. Assume the company uses variable costing with FIFO. 34 (a) Compute the unit manufacturing cost for both years. (3 marks) 35 (b) Prepare an income statement for the year ended December 31, 2019 in good form. (10 marks) 36 37 3. Reconcile the operating income as prepared by the assistant management accountant with that 38 calculated in part 2 (b) above, (4 marks) 39 40 4. The assistant management accountant inquired why you prepared a variable costing income statement 41 42 0 Briefly explain which format provides better information for internal users of the information, and why: 43 ) Explain how / why the production manager could increase operating income by adjusting 44 production volumes

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