Houston Company manufactures and sells one product. The following information pertains to each of the companys first three years of operations:

Variable costs per unit:
Direct materials	$2
Direct labor	$3
Variable manufacturing overhead	$4
Variable selling and administrative expense	$1
Fixed costs:
Fixed manufacturing overhead	$3,000
Fixed selling and administrative expense	$1,500

During its first year of operations, Houston produced 500 units and sold 500 units. During its second year of operations, it produced 800 units and sold 500 units. In its third year, Houston produced 400 units and sold 700 units. The selling price of the companys product is $20 per unit.

Assume the company uses absorption costing. Prepare an income statement for Year 1, Year 2, Year 3.

	Year 1	Year 2	Year 3
Sales
Cost of goods sold
Gross margin
Selling & Adm. expenses
Net income

Assume the company uses variable costing. Prepare an income statement for Year 1, Year 2, Year 3.

	Year 1	Year 2	Year 3
Sales
Variable expenses:
Variable CGS
Variable Selling & Adm.	Answer	Answer	Answer
Contribution margin
Fixed expenses:
Fixed MOH
Fixed Selling & Adm.
Net income