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Ace Products sells its products for $ 2 2 each. Unit manufacturing costs are: direct materials, $ 4 . 0 0 ; direct manufacturing labour,

Ace Products sells its products for $22 each. Unit manufacturing costs are: direct materials,
$4.00; direct manufacturing labour, $6.00; and variable manufacturing overhead, $3.00. Total
fixed manufacturing overhead costs are $60,000 and marketing expenses are $2.00 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.
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