Octavius Company produces a 10 -inch chef knife used by commercial chefs. The knives sell for \(\$ 40\) each. In 2008, the company produced 48,000 units and sold 45,000 units. Below are variable and full costing income statements for 2008.

Required
Reconcile the difference in profit between the two income statements.

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Income Statement Prepared Using Variable Costing Octavius Company Income Statement For the Year Ending December 31, 2008 Sales $1,800,000 Less variable costs: Variable cost of goods sold $575,000 Variable selling expense 200,000 775,000 Contribution margin 1,025,000 Less fixed costs: Fixed manufacturing expense 480,000 Fixed selling expense 125,000 Fixed administrative expense 85,000 690,000 Net income $ 335,000