Variable and absorption costing income statements [25—30 minutes] Stella’s Foods p...

Variable and absorption costing income statements [25—30 minutes]

Stella’s Foods produces frozen meals that it sells for $13 each. The company computes a new monthly fixed manufacturing overhead rate based on the planned number of meals to be produced that month. All costs and production levels are exactly as planned. The following data are from Stella’s Foods’ first month in business.  

Requirements

1. Compute the product cost per meal produced under absorption costing and under variable costing.

2. Prepare income statements for January 2011 using

a. absorption costing.

b. variable costing.

3. Is operating income higher under absorption costing or variable costing in January?