Gronk Corp. has a standard costing accounting system, with the following selected results BEFORE disposing of any variances: Contribution Margin $600,000 Variable selling and admin. $100,000 Fixed selling and admin. $140,000 Operating Leverage 6.0 During the period Gronk produced 600,000 units and sold 400,000 units. Selling price is $10/unit. There was no beginning or ending WIP inventory, and no beginning FG inventory. Actual fixed factory overhead equaled budgeted fixed factory overhead, and the denominator level was 480,000 direct labor hours. Assume the standard requires 1 direct labor hour to produce a unit. If Gronk did prorate variances, the contribution margin would be $550,000 AFTER disposing of variances. 1. (17 points) Present a standard absorption costing income statement with proration (show adjustments for variances, if any).

2.(4 points) If Gronk Corp. wants to legally minimize income taxes, and assuming they prorate variances, what type of income statement (absorption or variable costing) would you recommend they submit to the IRS? Why?