Mark Hancock Incorporated 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: Sales (units) 2021 6,800 2022 6,400 Production 7,000 5,920 Budgeted production and sales 7,600 7,000 Beginning inventory 1,000 1,200 Data per unit (all variable) Price $ 2,095 $ 1,995 Direct materials and labor Selling costs Fixed costs Manufacturing overhead. 1,200 125 1,200 125 $ $ Complete this question by entering your answers in the tabs below. Complete this question by entering your answers in the tabs below. Req 1 Req 2A Req 2B Req 1 Req 2A Req 2B Using variable costing, prepare an income statement for each period. Using the full costing method, prepare the income statement for 2022. MARK HANCOCK, INCORPORATED Full Costing Income Statement MARK HANCOCK, INCORPORATED Variable Costing Income Statement 2021 2022 Cost of goods sold 2022 Cost f goods sold Cost of goods available for sale Selling and administrative 1,330,000 1,225,000 120,000 120,000 Top management at Hancock explained to the consultant that a difficult business environment for the firm in 2021 and 2022 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 2021, which the firm was able to reduce in 2022 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 2021 was determined from the fixed overhead rate of $175 per unit ($1,330,000/7,600 budgeted units). Because the actual production level was 600 units short of the budgeted level in 2021 (7,600-7,000), the amount of the production volume variance in 2021 was 600 x $175 $105,000. 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 2021 is shown below: Cost of goods available for sale Cost of goods sold Adjusted cost of goods sold Gross margin Less: Selling and administrative costs Operating income Cost of goods sold Contribution margin Less: Selling and administrative costs Operating income Sales Cost of goods sold: Beginning inventory Cost of goods produced 14,246,000 $ 1,375,000 9,625,000 $ Cost of goods available for sale 11,000,000 Gross margin Less ending inventory Cost of goods sold: Plus unfavorable production volume variance Adjusted cost of goods sold Less selling and administrative costs 1,650,000 $ 9,350,000 105,000 9,455,000 $ 4,791,000 Variable Fixed Operating income $ 850,000 120,000 970,000 $ 3,821,000 Required: 1. Using the full costing method, prepare the income statement for 2022. 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. Req 1 Req 2A Req 2B Prepare a reconciliation of the difference each year in the operating income methods. (Negative amounts should be indicated by a minus sign.) MARK HANCOCK, INCORPORATED Reconciling Difference in Net Income Between Absoprtion and Variable Costing Change in inventory in units Multiply times fixed overhead rate Difference in net income 2021 2022