Fagan Manufacturing uses an absorption costing system. In 2009 it manufactured 25,000 units and sold 20,000 units at $45 each. The company's income statement for year ended December 31 2009 is as follows:

FAGAN MANUFACTURING COMPANY

INCOME STATEMENT

FOR THE YEAR ENDING DECEMBER 31, 2009

Sales

$900,000

Cost of goods sold:

Finished goods inventory, January 1

$0

Cost of goods manufactured

812,500

Goods available for sale

$812,500

Finished goods inventory, December 31

162,500

Cost of goods sold

650,000

Gross margin

$250,000

Less Operating expenses:

Selling

$135,000

Administrative

30,000

Total selling and administrative

165,000

Operating profit

$85,000

The following additional information is available:

Variable costs per unit:

Direct materials$9.50

Direct labor 12.00

Manufacturing overhead4.00

Selling expenses5.50

Fixed costs for the period:

Manufacturing overhead$175,000

Selling25,000

Administrative30,000

REQUIRED

Show ALL necessary workings

(a) When absorption costing was used, how much fixed manufacturing overhead was deferred in finished goods inventory?

(b) Prepare income statement using variable costing.

(c) Reconcile the profit on the variable costing income statement with the profit shown on the absorption costing income statement.