Mark Hancock Inc. manufactures a specialized surgical instrument called the HAN-20. The firm has grown rapidly in recent years because of the product's low price and high quality. However, sales have declined this year primarily due to increased competition and a decrease in the surgical procedures for which the HAN-20 is used. The firm is concerned about the decline in sales and has hired a consultant to analyze the firm's profitability. The consultant was provided the following information: 2018 2019 Sales (units) Production Budgeted production and sales Beginning inventory 5,200 5,320 6,000 800 4,800 4,320 5,400 920 Data per unit (all variable) Price Direct materials and labor Selling costs $2,095 $ 1,995 1,200 125 1,200 125 Fixed costs Manufacturing overhead Selling and administrative $1,050,000 $945,000 120,000 120,000 Top management at Hancock explained to the consultant that a difficult business environment for the firm in 2018 and 2019 had caused the firm to reduce its price and production levels and reduce its fixed manufacturing costs in response to the decline in sales. Even with the price reduction, there was a decline in sales in both years. This led to an increase in inventory in 2018, which the firm was able to reduce in 2019 by further reducing the level of production. In both years, Hancock's actual production was less than the budgeted level so that the overhead rate for fixed overhead, calculated from budgeted production levels, was too low, and a production volume variance was calculated to adjust cost of goods sold for the underapplied fixed overhead (the calculation of the production volume variance is explained fully in Chapter 15 and reviewed briefly below). The production volume variance for 2018 was determined from the fixed overhead rate of $175 per unit ($1,050,000/6,000 budgeted units). Because the actual production level was 680 units short of the budgeted level in 2018 (6,000 5,320), the amount of the production volume variance in 2018 was 680 $175 = $119,000. The production volume variance is underapplied because the actual production level is less than budgeted, and the production volume variance is therefore added back to cost of goods sold to determine the amount of cost of goods sold in the full costing income statement. The full costng income statement for 2018 is shown below Sales Cost of goods sold: 10,894,000 Beginning inventory Cost of goods produced Cost of goods available for sale Less ending inventory $1,100,000 7,315,000 $8,415,000 1,265,000 $ 7,150,000 119,000 $ 7,269,000 $ 3,625,000 Cost of goods sold: Plus unfavorable production volume variance Adjusted cost of goods sold Gross margin Less selling and administrative costs Variable Fixed $ 650,000 120,000 770,000 $ 2,855,000 Operating income Requirec 1. Using the full costing method, prepare the income statement for 2019. 2-a. Using variable costing. prepare an income statement for each period. 2-b. Prepare a reconciliation of the difference each year in the operating income resulting from the full- and variable-costing methods. Complete this question by entering your answers in the tabs below. Req 1 Req 2A Req 2B Using the full costing method, prepare the income statement for 2019 MARK HANCOCK, INC Full Costing Income Statement 2019 Sales $ 10,894,000 Cost of goods sold Beginning inventory 1,400 Cost of goods available for sale Cost of goods sold Adjusted cost of goods sold Gross margin Less: Selling and administrative costs Operating income Req Req 2A > Complete this question by entering your answers in the tabs below Req 1q AReq 2B Using variable costing, prepare an in come statement for each MARK HANCOCK, INC., Variable Costing Income Statement 2018 2019 Cost of goods sold Cost of goods available for sale Cost of goods sold Contribution margin Less: Selling and administrative costs Operating income Req 1 Req 2B Required 1. Using the full costing method, prepare the income statement for 2019 2-a. Using variable costing, prepare an income statement for each period. 2-b. Prepare a reconciliation of the difference each year in the operating income resulting from the full- and variable-costing methods. Complete this question by entering your answers in the tabs below Req 1 Req 2A Req 2B Prepare a reconciliation of the difference each year in the operating income resulting from the full- and variable-costing methods. (mounts should be indicated by a minus sign.) MARK HANCOCK, INC, Reconciling Difference in Net Income Between Absoprtion and Variable Costing 2018 2019 Change in inventory in units Multiply times fixed overhead rate Difference in net income Req 2A Req 2B