Cowell Corporation produces one product. Its cost includes direct materials ($10 per unit), direct labor ($8 per unit), variable overhead ($6 per unit), fixed manufacturing ($250,000), and fixed selling and administrative ($30,000). In October 2010, Cowell produced 25,000 units and sold 20,000 at $50 each.

Instructions

(a) Prepare an absorption costing income statement.

(b) Prepare a variable costing income statement.

(c) Explain the difference in net income in the two income statements.