Absorption and variable costing Bird's Eye View manufactures satellite dishes used in residential and commercial installations for satellite-broadcasted television. For each unit, the following costs apply: $50 for direct material, $100 for direct labor, and $60 for variable overhead. The company's annual fixed overhead cost is $1,350,000; it uses expected capacity of 22,500 units produced as the basis for applying fixed overhead to products. A commission of 10 percent of the selling price is paid on each unit sold. Annual fixed selling and administrative expenses are $324,000. The following additional information is available: Year 1 Year 2 Selling price per unit $500 $500 Number of units sold 18,000 21,600 Number of units produced 22,500 19,800 Beginning inventory (units) 13,500 18,000 Ending inventory (units) 18,000 a. Prepare pre-tax income statements under absorption and variable costing for Year 1 and Year 2, with any volume variance being charged to Cost of Goods Sold. Note: Do not use negative signs in your answers. Bird's Eye View Income Statements (Absorption) For the Years Ended December 31, Year 1 and Year 2 Year 1 Year 2 Sales $ 0 $ 0 $ 0 $ 0 0 0 0 CGS Underapplied FOH Gross profit S&A: Oo $ 0 $ Variable $ 0 $ 0 Fixed 0 0 0 0 Income before taxes $ 0 $ 0 b. Prepare pre-tax income statements under variable costing for Year 1 and Year 2 with any volume variance being charged to Cost of Goods Sold. Note: Do not use negative signs in your answers. Bird's Eye View Income Statements (Variable) For the Years Ended December 31, Year 1 and Year 2 Year 1 Year 2 $ 0 $ Sales 0 CGS 0 0 $ 0 $ 0 Product CM Variable S&A 0 Total CM $ 0 $ 0 Fixed costs: $ 0 $ 0 Factory S&A 0 0 0 0 Income before taxes $ 0 $ 0 c. Reconcile the differences in income for the two methods. Year 1 Year 2 0 $ 0 0 0 0 $ 0 Net income (absorption) $ Net income (variable) Difference in income $ Difference equals inventory change $ Times FOH application rate Difference in income $ 0 $ 0 0 0 0 $ 0