Bear Bear Limited manufactures toys for kids and began operations in 2016. For 2016, Bear Bear budgeted to produce and sell 2,000 units. The company had no price, spending, or efficiency variances and writes off production-volume variance to cost of goods sold. Actual data for 2016 are given as follows:

Units produced 1,900

Units sold 1,800

Selling price $200

Variable cost: Manufacturing cost per unit produced

Direct materials $5

Direct manufacturing labor $8

Manufacturing overhead $4

Marketing cost per unit sold $10

Fixed costs:

Manufacturing costs $100,000

Administrative costs $80,000

Marketing costs $50,000

Required

a Prepare a 2016 income statement for Bear Bear Limited using variable costing. (11 marks)

b Prepare a 2016 income statement for Bear Bear Limited using absorption costing. (11 marks)

c Explain the differences in operating incomes obtained in requirements (a) and (b). (5 marks)