Environmental Business Consultants (EBC) compensates all of its employees as salaried workers. Thus, EBC considers its labor cost as fixed—that is, EBC consultants are paid their full salary and benefits regardless of the number of consulting projects that they perform during a year. The only other fixed cost is the office lease expense. A partial trial balance for 2019 is provided below.

Assume that EBC’s beginning absorption Work-in-Process Inventory is \($223,000\) and its ending absorption Work-in-Process (WIP) Inventory is \($247,000.\) Further, assume that EBC’s beginning variable WIP inventory is \($5,400\) and its ending variable WIP inventory is \($6,000.\)
Required

a. Determine income from operations using 

1. Absorption costing 

2. Variable costing.

b. Compare the income from operations derived under the two methods.

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Description Sales..... Reimbursable costs Executive salaries.. Clerical salaries Trial Balance Debit 431,000 844,500 217,500 Variable Credit or Fixed 4,146,000 Direct Service or SGA Consultant salaries. Employee benefits Payroll taxes... 1,050,000 145,500 123,000 Employee bonuses. 126,000 Marketing expenses. 48,000 Employee continuing education expenses. 27,000 Office lease expense 202,500 Office supplies expense. 64,500 V Other general administrative expense 355,500 V F >FFFFF>>>>> 000000 D SGA SGA SGA D D SGA