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Compute the unit product cost under both the absorption costing and variable costing approaches.

a)

	Cost Per Unit Absorption costing Variable costing

b)

Prepare an income statement for the year using absorption costing.

	Absorption Costing Income Statement

c)

Prepare an income statement for the year using variable costing.

	Variable Costing Income Statement Variable expenses: Fixed expenses:

d)

Reconcile the absorption costing and variable costing net operating income figures in (b) and (c) above.

	Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Net operating income (loss) under variable costing Net operating income (loss) under absorption costing

The Dorset Corporation produces and sells a single product. The following data refer to the year just completed Beginning inventory Units produced Units sold Selling price per unit Selling and administrative expenses: 29,100 26,600 $435 Variable per unit Fixed per year 24 $345,800 Manufacturing costs: Direct materials cost per unit Direct labor cost per unit Variable manufacturing overhead cost per unit Fixed manufacturing overhead per year 239 34 $582,000 Assume that direct labor is a variable cost. Required: a. Compute the unit product cost under both the absorption costing and variable costing approaches b. Prepare an income statement for the year using absorption costing c. Prepare an income statement for the year using variable costing d. Reconcile the absorption costing and variable costing net operating income figures in (b) and (c) above

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