Dexter Company produces and sells a single product, a wooden hand loom for weaving small items such as scarves. The unit sells for $50.00 each. Variable costs per unit are as follows: direct materials, $11; direct labor, $6; variable overhead, $3. Fixed costs per year are $120,000. Selling and administrative costs are $5 per unit (variable) and $70,000 fixed costs per year. Other operating data are:

Year 1 Year 2

Units in beginning inventory 0 2,000

Units produced during the year 10,000 6,000

Units sold during the year 8,000 8,000

Units in ending inventory 2,000 0

Support your response to the following with calculations in good form:

a. Using absorption costing, compute the unit product cost and prepare an income statement for each year.

b. Using variable costing, compute the unit product cost and prepare an income statement for each year.

c. Discuss why any differences in income occurred. Be clear and precise.