Variable Costing: The variable costing is a method used to allocate the fixed manufacturing overhead by a company. It allocates these overheads to the period of production and not to the inventory left unsold or ending inventory. Absorption Costing: The absorption costing is a method used to allocate the fixed manufacturing overhead by a company. It allocates these overheads based on the inventory produced and inventory sold. It is based on the approach that the unsold inventory also consist some fixed manufacturing overhead incurred during a period. To identify: (a) The operating income from variable costing, (b) The operating incomes from absorption costing.

Step 1. Variable Costing is a method used to allocate fixed manufacturing overhead by a company. It allocates these overheads to the period of production and not to the unsold or ending inventory. Step 2. Absorption Costing is a method used to allocate fixed manufacturing overhead by a company. It allocates these overheads based on the inventory produced and inventory sold. It considers that the unsold inventory also contains some fixed manufacturing overhead incurred during the period. Step 3. To identify the operating income from variable costing. Step 4. To identify the operating income from absorption costing. Step 5. For the computation of the operating income from variable costing, follow the steps below: Step 5.1. Table (1) - Statement showing the computation of operating income from variable costing. Step 6. For the computation of the operating income from absorption costing, follow the steps below: Step 6.1. Table (2) - Statement showing the computation of operating income from absorption costing. Step 7. Working Note: For the month of January, compute the fixed manufacturing cost per unit. Step 7.1. Compute the fixed manufacturing cost per unit using the formula: Fixed manufacturing cost per unit = Fixed manufacturing cost / Number of units. Step 7.2. Substitute the values into the formula to calculate the fixed manufacturing cost per unit. Step 8. Compute the variance for each month. Step 8.1. For the month of February, calculate the production variance using the formula: Production variance = Fixed overhead rate * (Denominator level - Actual level produced).