18-6. Security Technology Inc. (STI) is a manufacturer of an electronic control system used in the manufacture of certain special-duty auto transmissions used primarily for police and military applications. The part sells for $56 per unit and had sales of 24,050 units in the current year, 2018. STI has no inventory on hand at the beginning of 2018 and is projecting sales of 26,150 units in 2019. STI is planning the same production level for 2019 as in 2018, 25,100 units. The variable manufacturing costs for STI are $17, and the variable selling costs are only $0.60 per unit. The fixed manufacturing costs are $175,700 per year, and the fixed selling costs are $510 per year.

Required:

1. Prepare an income statement for each year using full costing.

2. Prepare an income statement for each year using variable costing.

3. Prepare a reconciliation of the difference each year in the operating income resulting from the full and variable costing methods.

SECURITY TECHNOLOGY INC. Full Costing Income Statement 2018 2019 Sales Less: Cost of goods sold Beginning inventory Cost of goods produced Available for sale Less: Ending inventory Cost of goods sold Gross margin Less: Selling and administrative costs Variable Fixed Operating income