Placid Corporation developed the following standard unit costs at 100% of its normal production capacity, which is 50,000 units per year:
Direct materials ..................................................................$2
Direct labor ....................................................................... 3
Variable factory overhead ...................................................... 1
Fixed factory overhead ......................................................... 3
$9
The selling price of each unit of product is $16. Variable commercial expenses are $1 per unit sold, and fixed commercial expenses total $99,000 for the period. During the year, 51,000 units were produced and 48,000 units were sold. There are no work in process beginning or ending inventories, and finished goods inventory is maintained at standard cost, which has not changed from the preceding year. For the current year, there is a net unfavorable variable cost variance in the amount of $1,000. All standard cost variances are charged to cost of goods sold at the end of the period.
Required:
(1) Prepare an income statement on the absorption costing basis.
(2) Prepare an income statement on the direct costing basis.
(3) Compute and reconcile the difference in operating income for the current year under absorption costing and direct costing.