Parzival Company produces and sells tactile gloves for full immersion virtual reality suits. The company had the following results for its first two years of operation:

In Year 1, the company produced and sold 40,000 pairs of VR gloves, its only product; in Year 2, the company again sold 40,000 pairs of VR gloves, but increased production to 50,000 pairs. The company's variable production cost is $5 per unit and its fixed manufacturing overhead cost is $600,000 a year. Fixed manufacturing overhead costs are applied to the product on the basis of each year's unit production (i.e., a new fixed overhead rate is computed each year). Variable selling and administrative expenses are $2 per unit sold. The VR gloves were sold for $30 per pair in each year.

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

b. Prepare an income statement for each year, using the variable costing method and the absorption costing method.

c. Explain why the net operating income for Year 2 under absorption costing was higher than the net operating income for Year 1, although the same number of units were sold in each year.