Covina Enterprises released the following figures from its records for Year 1 and Year 2:

a. Prepare income statements for both years, using the traditional method with fullabsorption costing.

b. Prepare income statements for both years, using the contribution margin method with variable costing.

c. Comment on the different operating profit figures. Write a brief report explaining why the operating profits are different, if they are.

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Year 1 Year 2 Sales units 125,000 125,000 Production units Selling price per unit. 125,000 172,000 $20 $20 Variable manufacturing cost per unit Annual fixed manufacturing cost ..... $12 $12 $430,000 $430,000 Variable marketing and administrative costs per unit sold $1.20 $1.20 Fixed marketing and administrative costs $420,000 $420,000 Beginning inventory $0 ?