Absorption versus variable costing Tortorici Company makes ladderback chairs that it sells for $200 per chair. Each chair requires $28 of direct materials and $72 of direct labor. Fixed overhead costs are expected to be $120,000 per year.

Tortorici expects to sell 1,500 chairs during the coming year.

Required

a. Prepare income statements using absorption costing, assuming that Tortorici makes 1,500, 2,000, and 2,500 chairs during the year.

b. Prepare income statements using variable costing, assuming that Tortorici makes 1,500, 2,000, and 2,500 chairs during the year.

c. Explain why Tortorici may produce income statements under both absorption and variable costing formats. Your answer should include an explanation of the advantages or disadvantages associated with the use of the two reporting formats.