4 III. (40 points) The Rehe Company sells its product at $5 per unit. The company uses a first-in, first-out actual costing system. That is, a new fixed-factory-overhead allocation rate is computed each year by dividing the actual fixed factory overhead by the actual production. The firm has no ending work-in-process each year. The following simplified data relate to its first two years of operation: Sales Production Costs: Year 1 1,100 units Year 2 1,200 units 1,400 units 1,000 units Manufacturing - variable Selling and Administrative: $ 2,800 $ 2,000 - fixed 700 700 - variable fixed 1,100 300 1,200 300 Calculate Rehe's operating income in Year 2 under: A. variable costing B. absorption costing