Preparing an income statement using absorption and direct costing. During the year 19X3 the Chin Company produced 13,500 units and sold 15,000 units at $198 each. The costs incurred were as follows:

Instructions 1. Prepare an income statement for the year 19X3 using absorption costing. The beginning inventory was $367,500.
2. Prepare an income statement for the year 19X3 using direct costing. The beginning inventory was $242,500.
3. Prepare a reconciliation of the net income under direct costing and absorption costing.

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Materials (13,500 units at $39 per unit) Labor (13,500 units at $49 per unit) Manufacturing Overhead Fixed Variable (13,500 units at $9 per unit) Selling and Administrative Expenses Fixed Variable (15,000 units at $12.50 per unit) $500,000 $526,500 661,500 121,500 621.500 $198,000 187,500 385,500