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Highlands Manufacturing Company has determined the cost of manufacturing a unit of product to be as follows, based on normal production of 50,000 units per year:

Direct materials	$10
Direct labor	8
Variable factory overhead	6
	$24
Fixed factory overhead	6
	$30

Operating statistics for the months of July and August are as follows:

	July	August
Units produced	6,000	4,000
Units sold	4,000	6,000
Selling and administrative expenses	$25,000	$25,000

The selling price is $40 per unit. There were no inventories on July 1, and there is no work in process at August 31.

Complete the comparative income statements on the next page for July and August for Highlands under:

1. absorption costing

2. variable costing

3. Explain the reason for the differences in the net income