Birds Eye View manufactures satellite dishes used in residential and commercial installations for satellite-broadcasted television. For each unit, the following costs apply: $50 for direct material, $100 for direct labor, and $60 for variable overhead. The companys annual fixed overhead cost is $450,000; it uses expected capacity of 7,500 units produced as the basis for applying fixed overhead to products. A commission of 10 percent of the selling price is paid on each unit sold. Annual fixed selling and administrative expenses are $108,000. The following additional information is available:

	Year 1	Year 2
Selling price per unit	$500	$500
Number of units sold	6,000	7,200
Number of units produced	7,500	6,600
Beginning inventory (units)	4,500	6,000
Ending inventory (units)	6,000	?

a. Prepare pre-tax income statements under absorption and variable costing for Year 1 and Year 2, with any volume variance being charged to Cost of Goods Sold. Note: Do not use negative signs in your answers.

Birds Eye View
Income Statements (Absorption)
For the Years Ended December 31, Year 1 and Year 2
	Year 1		Year 2
Sales
CGS
Underapplied FOH
Gross profit
S&A:
Variable
Fixed
Income before taxes

b. Prepare pre-tax income statements under variable costing for Year 1 and Year 2, with any volume variance being charged to Cost of Goods Sold. Note: Do not use negative signs in your answers.

Birds Eye View
Income Statements (Variable)
For the Years Ended December 31, Year 1 and Year 2
	Year 1		Year 2
Sales
CGS
Product CM
Variable S&A
Total CM
Fixed costs:
Factory
S&A
Income before taxes

c. Reconcile the differences in income for the two methods.

		Year 1	Year 2
Net income (absorption)
Net income (variable)
Difference in income
Difference equals inventory change
Times FOH application rate
Difference in income