APL, Inc. began operations on January 1, 2016. The company does not generally carry Work in

Process Inventories at the end of the year. Variable product costs per unit were the same for 2016,

2017 and 2018 and total $68 per unit. Total Fixed Overhead Costs are $600,000 per year. Variable

Selling and Administrative Costs are $9 for each unit sold. Fixed Selling and Administrative Costs are

$230,000 per year. The Selling Price is $450 per unit for all three years. Production and Sales

figures (in units) for three years are below.

2016

2017

2018

Production (units)

4,000 units

5,000 units

3,000 units

Sales (units)

2,000 units

2,500 units

5,000 units

The company uses the FIFO method to assign cost to any units left in ending Finished Goods

Inventory.

TASKS:

A.

Prepare, in good form (to include a proper heading), two Income Statements for 2017: One

using Absorption Costing and one using Variable Costing. Use the formats that I used in the

class example for Chapter 6. Then, prepare a Reconciliation to explain the difference in the

Net Income figures. Again, use the format that I used in the class example.

B.

Now, assume that the Variable Costing Net Income is $1,035,000 for 2018. Prepare a

Reconciliation Schedule to compute the Absorption Costing Net Income for the same year.

DO NOT PREPARE AN ABSORPTION COSTING INCOME STATEMENT.