Coyote company produces a single product with the following information about the 3 years from 2018 to 2020: (similar to Problem 7-18)

Variable costs per unit:

Direct materials $4

Direct labor $6

Variable mfg. overhead $7

Selling & administrative expenses $3

Fixed costs per year:

Manufacturing overhead $250,000

Selling & administrative expenses $200,000

During 2018, Coyote produced 50,000 units and sold 50,000 units. During 2019, It produced 60,000 units and sold 55,000 units. In 2020, it produced 65,000 units and sold 66,000 units. The selling price of the company’s product is $60 per unit.

Instruction:

1. Prepare income statements of Coyote Company for 2018, 2019, 2020 using

• Variable costing.
• Absorption costing.

2.  Compare the net incomes under variable costing with those under absorption costing for the 3 years. Explain the causes of differences in the net incomes for those 3 years between variable costing and absorption costing.