aCompany manufactures and sells a single product. The following costs were incurred during the companys first year of operations:

Variable cost per year:

Direct Materials $18

Direct labor $7

Variable manufacturing overhead $2

Variable selling and administrative $5

Fixed cost per year:

Fixed manufacturing overhead $160,000

Fixed selling and administrative $110,000

During the year, the company produced 20,000 Units and sold 16,000 units. The selling price of the companys product is $50 per unit.

Assume Ingle Company uses the absorption costing method. Compute the unit product cost and prepare an income statement for the year.

Assume Ingle Company uses the variable costing method. Compute the unit product cost and prepare a contribution format income statement for the year.

Explain (specifically) why the two methods on the previous page yield different net incomes. Be sure to use numbers relating to this problem.