Ace Products sells its products for $$22$ each. Unit manufacturing costs are: direct materials,

$$4\mathrm{.}00$; direct manufacturing labour, $$6\mathrm{.}00$; and variable manufacturing overhead, $$3\mathrm{.}00.$ Total

fixed manufacturing overhead costs are $$60,000$ and marketing expenses are $$2\mathrm{.}00$ per unit

plus $$20,000$ per year. The current production level is $25,000$ units although only $20,000$ units

are anticipated to be sold.

Required:

a$.$ Prepare an income statement using absorption costing in the gross margin format.

b$.$ Prepare an income statement using variable costing in the contribution margin format.

c$.$ Provide a reconciliation of the difference between the operating income using absorption

costing and using variable costing.