(Net income; absorption vs. variable costing) Modmodems manufactures high-speed modems. Throughout 1997, unit variable cost remained constant and fixed over¬ head was applied at the rate of $4 per unit. Income before tax using the variable costing method was $86,000 for July 1997. Beginning and ending inventories for July were 17,000 and 15,000 units, respectively.

a. Calculate income before tax under absorption costing assuming no variances.

b. Assume that the company’s beginning and ending inventories were 15,000 and 18,000 units, respectively. Calculate income before tax under absorption costing.

LO1