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    Managerial Accounting for Far North Telecom Ltd.

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    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. 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: 12,000 units produced, 10,000 units sold. Comment on the five questions below the table. Respond to at least two of your fellow students' postings.

    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) $470,000

    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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