Navaroli Company began operations on January 5, 2015. Cost and sales information for its first two calendar years of operations are summarized below.

Manufacturing Costs: Direct materials $80 per unit Direct labor $120 per unit Factory overhead costs: Variable overhead $30 per unit Fixed overhead $14,000,000 Nonmanufacturing costs Variable selling and administrative $10 per unit Fixed selling and administrative $8,000,000 Production and sales data 2015 2016 Units produced 200,000 units 80,000 Units sold 140,000 140,000 Units in ending inventory 60,000 0 Sales price per unit $600 $600

Required

1. Prepare an income statement for the company for 2015 under absorption costing.

2. Prepare an income statement for the company for 2015 under variable costing.

3. Explain the source(s) of the difference in reported income for 2015 under the two costing methods.

4. Prepare an income statement for the company for 2016 under absorption costing.

5. Prepare an income statement for the company for 2016 under variable costing.

6. Prepare a schedule to convert variable costing income to absorption costing income for the years 2015 and 2016.