Azure Company went into business two years ago. Information concerning production, costs, sales, and inventory levels for the last two years is as follows:

a. Calculate unit product cost using absorption costing.

b. Calculate unit product cost using variable costing.

c. Which costing method, variable or absorption, will report a higher net income for 2004?

d. Which costing method, variable or absorption, will report a higher net income for 2005?

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2005 2004 Sales revenue Sales in units $1,200,000 $1,000,000 22,000 15,000 Production in units 20,000 20,000 Variable product cost per unit $30 $30 Fixed manufacturing overhead $10,000 $10,000 Fixed selling and administrative expenses $30,000 $30,000 Variable selling and administrative expenses (per unit sold) $5 $5