ABC Company sells 18,000 units of a product at $50 per unit. This is the first year of operations so there is no beginning inventory of finished units. The following information is available:

Units produced 20,000

Raw material costs per unit $10.00

Direct labor cost per unit $4.00

Variable overhead per unit $6.00

Fixed overhead total costs $50,000

Fixed overhead costs per unit $2.50

Variable selling expense per unit sold $2.00

Fixed selling expenses $40,000

Required:

Calculate operating income under absorption costing show work.

Calculate operating income under variable costing show work.

Explain why the difference in incomes exist.