Refer to the information for Presidio, Inc., in PA5-4. Additional information for Presidio's most recent year of operations follows:

Number of units produced..................................................................2,000

Number of units sold........................................................................1,300

Sales price per unit.......................................................................$ 650.00

Direct materials per unit....................................................................60.00

Direct labor per unit.........................................................................90.00

Variable manufacturing overhead per unit...............................................40.00

Fixed manufacturing overhead per unit ($235,000 ÷ 2,000 units)..................117.50

Total variable selling expenses ($10 per unit sold) ...............................13,000.00

Total fixed general and administrative expenses...................................70,000.00

Required:

1. Without any calculations, explain whether Presidio's profit will be higher with full absorption costing or variable costing.

2. Prepare a full absorption costing income statement and a variable costing income statement for Presidio. Assume there was no beginning inventory.

3. Compute the difference in profit between full absorption costing and variable costing. Reconcile the difference.