1. Conan Company produces sporting equipment. In 2015, the first year of operations, Conan produced 25,000 units and sold 18,000 units. In 2016, the production and sales results were exactly reversed. In each year, selling price was $100, variable manufacturing costs were $40 per unit, variable selling expenses were $8 per unit, fixed manufacturing costs were $540,000, and fixed administrative expenses were $200,000.

a) Prepare an income statement for 2015 using variable costing.

b) Prepare an income statement for 2015 using absorption costing.

c) Reconcile the differences in 2015 income from operations under the two costing approaches.