Miller Company has just completed its second year of operations. In Year 1, Miller Company produced 40,000 units and sold 35,000 units of its only product. In Year 2, the company sold 40,000 units, but increased production to 45,000 units.

The company's variable production cost is $4.85 per unit, and its fixed manufacturing overhead cost is $660,000 a year. Fixed manufacturing overhead costs are applied to the product on the basis of each year's units of production (i.e., a new fixed overhead rate is computed each year). Variable selling and administrative expenses are $2.10 per unit. Fixed selling and administrative expenses were $220,000 a year. The selling price per unit was $32 in both years.

Required:

a) Compute the unit product cost for each year under absorption costing and under variable costing.

b) Prepare an income statement for each year, using the absorption format.

c) Prepare an income statement for each year, using the contribution format with variable costing.

d) Reconcile the variable costing and absorption costing income figures for each year