Variable Costing Operating Profit and Reconciliation with Full-Absorption: The Sierra Corporation employs a full-absorption costing system for its external reporting as well as for internal management purposes. The latest annual income statement appears as follows: 

Management is somewhat concerned that although they are showing adequate in- come, there has been a shortage of cash to meet operating costs. The following information has been provided to assist management with its evaluation of the situation:

There are no work in process inventories. Management reports it is pleased that this year manufacturing costs are 70 percent variable compared to last year, when these costs were only 45 percent variable. While 80 percent of the marketing costs are variable, only 40 percent of the administrative costs are considered variable.

Required:

a. Prepare a variable costing income statement for the year.

b. Reconcile the difference between the full-absorption costing operating profit given in the problem to the variable costing operating profit in part (a).

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Sales revenue Cost of goods sold: Beginning finished goods inventory Cost of goods manufactured Ending finished goods inventory Cost of goods sold Gross margin Marketing costs Administrative costs Operating profit before taxes $ 22,000 $415,000 315,000 (86,000) 251,000 164,000 83,000 49,800 $ 31.200