Baggy Green Co. produces cricket kits for amateur and backyard cricket enthusiasts. Last year, the company reached its planned production of 20,000 kits and sold all but 2,000 kits. The kits sell for $50 each. Costs incurred in the production of the kits are as follows:

Materials used	40,000
Other Variable production costs	60,000
Fixed production costs	100,000
Variable selling costs	18,000
Fixed selling and administrative costs	100,000

Baggy Green Co. uses a normal costing system.

Required:

1. Prepare an income statement under (i) variable costing and (ii) absorption costing
2. Reconcile the differences in reported income under variable and absorption costing. Explain how the differences occur