Alliance Tooling produces a single product in its plant. At the beginning of the year, there were no units in inventory. During the year, Alliance produced 120,000 units and sold 100,000 units at $26.75 per unit. Variable manufacturing costs are $13.5 per unit. There is no fixed manufacturing cost. Alliance pays $2.7 per unit for sales commissions and shipping. It has fixed costs of $720,000 for selling and administration. Its tax rate is 40 percent. Which statement is TRUE in this case?

Group of answer choices

Profit under absorption costing is larger than profit under variable costing by $120,000.

Profit under absorption costing is the same as profit under variable costing.

Profit under absorption costing is larger than profit under variable costing because the level of inventory increases.

Profit under variable costing is larger than profit under absorption costing by $120,000.