Chairry's is a direct marketer of popular music. The following information about its revenue and cost structure is available:

Selling price $13.00 / CD Variable costs:

Production $3.00 / CD Selling administrative $1.00 / CD

Fixed Costs:

Production $1,000,000 / year

Selling and administrative $3,000,000 / year

Assume that 500,000 CDs are produced and 450,000 are sold in 2011. What is income under variable costing?

$50,000

$500,000

$150,000

$1,850,000