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Angeleena's Bakery produces frozen taco dinners, which it sells for $11 each. The company computes the fixed manufacturing overhead rate based on the actual number of meals produced that month. All costs and production levels are exactly as planned. The following data are from Angeleena's Bakery first month in business: July Taco dinners sold 1,800 Taco dinners produced 2,500 Variable manufacturing expense per taco dinner $6.50 Sales commission per taco dinner $1.10 Total fixed manufacturing overhead $1,500 Total fixed marketing and administrative expenses $1,200 Angeleena's accountant gave her the following income statement for the month of July Angeleena's Tacos Inc. Income Statement for July Sales 19,800 Cost of Goods Sold Beginning Inventory 0 Cost of Goods Manufactured 17,750 Ending Inventory 4,970 Cost of Goods Sold 12,780 Gross Profit 7,020 Selling & Admin Expenses Fixed Marketing & Admin Expenses 1,200 Commission Expense 1,980 Total Selling & Admin Expenses 3,180 Net Income 3,840 Angeleena is surprised by these results. She just finished a course in managerial accounting and has analyzed her costs by behavior as either variable or fixed. Angeleena was expecting a different result based on July's sales. She discussed her concern with her accountant. He indicated that the statements were prepared using GAAP and inventory was accounted for by absorption method and includes its share of all manufacturing overhead costs. Required: Required: 1. Prepare the monthly income statement for July using the contribution margin format and variable costing for inventory. 2. Prepare a reconciliation explaining the reason for any difference between the income statement prepared by Angeleena's accountant and the one you prepared for Required "1". 3. In your opinion, which of the income statements accounts for fixed manufacturing overheads more correctly? Give one reason supporting your position

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