Absorption Costing Versus Variable Costing. Sparks, Inc., produces tricycles. The company has no finished goods inventory at the beginning of year $1.$ The following information pertains to Sparks, Inc.:

$\backslash$table$[[\backslash$table$[[$Annual Production$],[$Sales Price$]],\backslash$table$[[60,000$ units$],[$$$160$ per unit$]]],[$Variable Production Cost Per Unit$],[\backslash$table$[[$Direct Materials$],[$Direct Labor$]],],[\backslash$table$[[$Direct Labor$],[$Manufacturing Overhead$]],\{$:$[$$$16],[$$$20]\}$$$60$ per unit$],[$Fixed Production Costs,$\backslash$table$[[$$$480,000$ each year; $$8$ per unit at$],[60,000$ units of production$]]],[$Variable Selling and Administrative Cost,$$4$ per unit$],[$Fixed Selling and Administrative Cost,$$160,000$ each year$]]$

Required:

a$.$ All $60,000$ units produced during year $1$ are sold during year $1.$

Prepare a traditional income statement assuming the company uses absorption costing.

Prepare a contribution margin income statement assuming the company uses variable costing.

b$.$ Although $60,000$ units are produced during year $2,$ only $40,000$ are sold during the year. The remaining $20,000$ units are in finished goods inventory at the end of year $2.$

Prepare a traditional income statement assuming the company uses absorption costing.

Prepare a contribution margin income statement assuming the company uses variable costing.