Erin Mikell Company concerned that increased sales did not result in increased profits for 2015. Both variable unit and total fixed manufacturing costs for 2014 and 2015 remained constant at $20 and $2,000,000 respectively. In 2014 the company produced 100,000 units and sold 80,000 units at a price of $50 per unit. There was no beginning inventory in 2014. In 2015, the company made 70,000 units and sold 90,000 units at a price of $50. Selling and admin expenses were all fixed at $100,000 each year.

A. Prepare income statements for each year using absorption costing.

B. Prepare income statements for each year using variable costing.

C. Explain why the income was different each year using the two methods. Support your explanation with computations.