Porter Ltd began operation on 1 January, and achieved the following results for the year:

Sales .................................................36 000 units

Selling price ..........................................$45 per unit

Manufacturing costs:

Direct material .......................................$12 per unit

Variable overhead ...................................$6 per unit

Fixed manufacturing costs:

Variable ..............................................$3 per unit sold

Fixed .................................................$30 000

Production ...........................................37 500 units

Required:

1. Prepare an absorption costing income statement for Porter Ltd.

2. Prepare a variable costing contribution margin statement for Porter Ltd.

3. Reconcile the differences between the profits under the two statements by:

(a) Identifying the areas where the statements differ.

(b) Using the short-cut method.