=+2-45 KK Variable costing versus absorption costing OBJECTIVE 6 The Reke Company sells its razors at $3 per unit. The company uses a first-in, first-out actual costing system, where fixed manufacturing cost rate is calculated at the end of each year by dividing the actual fixed manufacturing costs by the actual production units. The following data are related to its first two years of operation:

Chapter 2: An introduction to costs terms and inventory costing 73 M02_HORN3377_02_LT_C02.indd 73 2/09/13 3:17 PM 2014 2015 Sales 1000 units 1200 units Production 1400 units 1000 units Costs:

Variable manufacturing $700 $500 Fixed manufacturing 700 700 Variable operating (marketing) 1000 1200 Fixed operating (marketing) 400 400 Required 1 Prepare income statements based on variable costing for each of the two years.