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Mark Hancock Inc. manufactures a specialized surgical instrument called the HAN-20. The firm has grown rapidly in recent years 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 6.000 6,040 6,800 800 2019 5,600 5, 120 6, 200 840 Sales (units) Production Budgeted production and sales Beginning inventory Data per unit (all variable) Price Direct materials and labor Selling costs Fixed costs Manufacturing overhead Selling and administrative $ 2,095 1,200 125 1,995 1,200 125 $1,190,000 120,000 $1,085,000 120,000 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 ($1,190,000/6,800 budgeted units). Because the actual production level was 760 units short of the budgeted level in 2018 (6,800 -6,040), the amount of the production volume variance in 2018 was 760 * $175 = $133,000. 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 12,570,000 $1,100,000 8,305,000 $9, 405,000 1,155,000 Beginning inventory Cost of goods produced Cost of goods available for sale Less ending inventory Cost of goods sold: Plus unfavorable production volume variance Adjusted cost of goods sold Gross margin Less selling and administrative costs Variable Fixed Operating income $ 8,250,000 133,000 $ 8,383,000 $ 4,187,000 $ 750,000 120,000 870,000 $ 3,317,000 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. X Answer is not complete. Complete this question by entering your answers in the tabs below. Req 1 Req 2A Reg 2B Using the full costing method, prepare the income statement for 2019. MARK HANCOCK, INC., Full Costing Income Statement 2019 Sales Cost of goods sold Beginning inventory Cost of goods produced Cost of goods available for sale Less: Ending inventory Cost of goods sold Adjust: Production volume variance Adjusted cost of goods sold Gross margin Less: Selling and administrative costs Variable Fixed Operating income Reg1 Reg 2A > Req 1 Reg 2A Reg 2B Using variable costing, prepare an income statement for each period. MARK HANCOCK, INC., Variable Costing Income Statement 2018 2019 Sales Cost of goods sold Beginning inventory Cost of goods produced Cost of goods available for sale Less: Ending inventory Cost of goods sold Add: Variable selling and administrative Contribution margin Less: Fixed manufacturing costs Less: Selling and administrative costs Fixed Operating income ( Req1 Req 2B > Reg 1 Reg 2A Req 2B Prepare a reconciliation of the difference each year in the operating income resulting from the full- and variable-costing methods. (Negative amounts 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 Reg 2A Req2B)