b.

1. Direct Materials per Unit	$2.25
   Direct Labor per Unit	$1.50
   Variable Manufacturing Overhead per Unit	$0.25
   Variable Selling and Administration Expenses	$1.75
   Units Produced	40,000
   Units Sold	36,000
   Sales Price	$12
   Fixed Manufacturing Expenses	$120,000
   Fixed Selling and Administration Expenses	$20,000

   Prepare an income statement under variable costing method.

   Income Statement
   	$
   	$
   	$
   	$

   Prepare a reconciliation to the income under the absorption method.

   Reconciliation
   	$
   	$

Direct Materials $16 Direct Labor $14 $4 $24 Variable Manufacturing Overhead Fixed Manufacturing Overhead Units Produced Units Sold 26,000 18,000 Its income statement under absorption costing is: Sales $1,900,500 Beginning Inventory $0 Cost of Goods Manufactured 1,508,000 Cost of Goods Available for Sale $1,508,000 Ending Inventory 464,000 Cost of Goods Sold $1,044,000 Gross Profit $856,500 -Sales and Admin. Expenses: Variable $108,000 Fixed 200,000 Total Sales and Admin. Expenses $308,000 Net Operating Income $548,500 Total Sales and Administrative Expenses Reconciliation