Franklin Manufacturing pays its production managers a bonus based on the company$$s profitability. During the two most recent years, the company maintained the same cost structure to manufacture its products.

Year Units Produced Units Sold

Production and Sales

Year $24,0004,000$

Year $36,0004,000$

Cost Data

Direct materials $ $14\mathrm{.}70$ per unit

Direct labor $ $23\mathrm{.}60$ per unit

Manufacturing overhead$$variable $ $10\mathrm{.}70$ per unit

Manufacturing overhead$$fixed $ $100,800$

Variable selling and administrative expenses $ $7\mathrm{.}70$ per unit sold

Fixed selling and administrative expenses $ $53,000$

$($Assume that selling and administrative expenses are associated with goods sold.$)$

Franklin sells its products for $$108\mathrm{.}50$ per unit.

Required

Prepare income statements based on absorption costing for Year $2$ and Year $3.$

Since Franklin sold the same number of units in Year $2$ and Year $3,$ why did net income increase in Year $3.$

Determine the costs of ending inventory for Year $3.$

Prepare income statements based on variable costing for Year $2$ and Year $3.$