far north telecom ltd of ontario has organized a new 281758

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 below:



Far 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:



Required:

1. Compute the unit product cost under:

a. Absorption costing.

b. 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 on the statement in (2) 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.