"In order to show a continually increasing net income, a firm should use absorption costing and always produce more than it sells." Discuss the validity of this statement.

15, Not In Absorption and Variable Costing. A company incurred the following costs in its manufacturing process for the month ending September 30, 20x0: Direct materials. Indirect matena's Dvect labor.. Indirect labor Depreciation of factory and equipment Factory managers' salaries. $55,000 15,000 79,000 25.000 5,000 10,000 The firm produced 30,000 units of product and sold 25,000 units at a selling price of $12.00 each The firm uses JIT; thus, there were no beginning or ending balances in work-in-process inventory and no beginning balance in finished goods inventory. Unfortunately, canceled customer contracts resulted in unsold goods at the end of the month. Variable selling and administrative expenses were $1.00 for each item sold, and fixed selling and administrative expenses totaled $70,000. In completing the requirements below, formal income statements are not required.

a. Calculate net income under absorption costing.

b. Calculate net income under variable costing.

e. Explain the reason for the difference in net income under the two methods.