Telecom, Ltd., of Ontario, has organized a new division to manufacture and sell specialty cellular telephones. Far North Telecom, Ltd., of Ontario, has organized a new division to manufacture and sell specialty cellular telephones. The division?s monthly costs are shown in the table below. Manufacturing costs: Variable costs per unit: Direct Materials $48 Variable manufacturing overhead $2 Fixed manufacturing overhead costs (total) $360,000 Selling and administration costs: Variable 12% of sales Fixed (total) $470,000Far North Telecom regards all of its workers as full-time employees and the company has a long-standing no layoff policy. Furthermore, production is highly automated. Accordingly, the company includes its labor costs in its fixed manufacturing overhead. The cellular phones sell for $150 each. During September, the first month of operations, the following activity was recorded: 12,000 units produced 10,000 units sold. Comment on the five questions below the table. 1. Compute the unit product cost under: o absorption costing o variable costing 2. Prepare an absorption costing income statement for September 3. Prepare a contribution format income statement for September using variable costing. 4. Assume that the company must obtain additional financing in order to continue operations. As a member of top management, would you prefer to rely n the statement in (b) above or in (3) above when meeting with a group of prospective investors? 5. Reconcile the absorption costing and variable costing net operating incomes in (2) and (3) above.
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