During its first year of operations, Fletcher produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company's product is $50 per unit.

1. Assume the company uses variable costing:

a) Compute the unit product cost for year 1 and year 2.

b) Prepare an income statement for year 1 and year 2

2. Assume the company uses absorbtion costing:

a) Compute the unit product cost for year 1 and year 2

b) Prepare an income statement for year 1 and year 2

3. Explain the difference between variable and absorption costing net operating income in year 1. Also, explain why the two net operating incomes differ in year 2.

Variable costs per unit:

Manufacturinig:

Direct materials.................................. $20

Direct labor..........................................$12

Variable manufacturing overhead........$4

Variable selling and administrative..........$3

Fixed costs per year:

Fixed manufacturing overhead............$200,000

Fixed selling and asministrative expense.... $80,000