During Dentions Company first two years of operations, the company reported absorption costing net operating incomes as follows:

Year 1 Year 2

Sales (@ $50 per unit) $1,000,000 $1,500,000

Cost of goods sold ( @ $34 per unit) 680,000 1,020,0000

________________ _________

Gross Margin 320,000 480,0000

Selling/administration exp 310,000 340,000

Net operating income $10,000 $ 140,000

* $3 per unit variable: $250,000 fixed each year

The company's $34 unit produt cost is computed as follows

Direct Materials $8

Direct labor $ 10

Variable manufacturing overhead= 2

Fixed manufacturing overhead 350,000/25,000 units= 14

Absorption costing unit product cost= $34

Production and cost data fo the two years are given below

year 1 year 2

units produced 25,000 25,000

units sold 20,000 30,000

Required:

1. Prepare a variable costing contribution format income statemen for each year

2. Reconcile the absorption costing and variable costing net operating income figures for each year