Blackstone Tools produced 12,000 electric drills during 2006, although expected production was only 10,500 drills. The company’s fixed overhead rate is $7 per drill. Absorption-costing operating income for the year is $18,000, based on sales of 11,000 drills.

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1. Compute: (a) Budgeted fixed overhead (b) Production volume variance (c) Variable-costing operating income 2. Reconcile absorption costing operating income and variable-costing operating income. Include the amount of the difference between the two and an explanation for the difference.