CJ Enterprises manufactures and sells widgets for $ 50 per unit.

Operations began in 2019. Total production was 5,000 units of which 4,800 units were sold leaving 200 units in inventory. Variable production costs total $ 50,000 and total fixed costs were $ 120,000.

Management selected FIFO costing for its inventory. Under FIFO, inventory on hand is old before currently produced units are sold.

During the 2020, CJ Enterprises produced 8,000 units of product and sold 7,950 units. Each unit produced generated $ 10.00 of variable manufacturing cost. Total fixed overhead cost for the current year was $ 180,000. Selling and administrative expenses were $ 88,000.

Note: Total fixed costs are significantly higher because 2020 was the first full year of operations.

Required: Complete the following tasks.

HINT: Calculate per unit cost for 2019 and 2020 separately before starting.

1. Prepare an absorption cost basis income statement for the current year.
2. Prepare a variable cost basis income statement for the current year.
3. Explain any difference between the two net income numbers and provide calculations supporting your explanation of the difference.