Variable and Absorption Costing Income Statements. Casselton Agricultural Products, Inc. started producing and selling a new product. Selected operating results for this new product line for its first year of operations are as follows:

Required:
1. Prepare an income statement for the year using the variable costing method.
2. Prepare an income statement for the year using the absorption costing method.
3. Prepare a reconciliation of net profits resulting from the two methods. Comment on the difference in profits.

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Units: Produced Sold... Sales price per unit Variable costs: Direct materials. Direct labor... Factory overhead. Marketing and administration Fixed costs: Factory overhead.. Marketing and administration 16,000 14,500 $ 12 $44,000 36,000 16,000 12,000 $ 40,000 20,000