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 $1,500,000; it uses expected capacity of 25,000 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 $360,000. The following additional information is available:

	Year 1	Year 2
Selling price per unit	$500	$500
Number of units sold	20,000	24,000
Number of units produced	25,000	22,000
Beginning inventory (units)	15,000	20,000
Ending inventory (units)	20,000	?

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.

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.

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