1. Absorption costing income statement of a company for the first two years is as follows:

	Year-1	Year-2
Sales	2,000,000	3,000,000
Less cost of goods sold:
Beginning inventory	0	340,000
Add cost of goods manufactured	1,700,000	1,700,000
	-	-
Goods available for sale	1,700,000	2,040,000
Less ending inventory	340,000	0
	-	-
Cost of goods sold	1,360,000	2,040,000
	-	-
Gross margin	640,000	480,000
Less selling and administrative expenses*	620,000	680,000
	-	-
Net operating income	20,000	280,000
	-	-
*6 per unit variable; $500,000 fixed each year.

The manufacturing cost per unit is computed as follows:

Direct materials	$16
Direct labor	$20
Variable manufacturing overhead	$4
Fixed manufacturing overhead	$28
	$68

Sales and production for two years:

	Year-1	Year-2
Units produced	25,000	25,000
Units sold	20,000	30,000

Required:

1. Prepare a variable costing (contribution margin) income statement.
2. Reconcile net operating income figures.