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Group Problem 1 Comparison of actual methods xed-factory-overhead application rate is computed The Rehe Company sells its razors at $3 per unit. The "pany sells its razors at S3 per unit. The company uses a first-in, first-out actual costing system. That is, a new fixed-factory-overhead applicat each year by dividing the actual fixed factory overhead by the actual prod following simplified data relate to its first two years of operation: Year 1 Year 2 Sales 1,000 units 1,200 units Production 1,400 units 1,000 units Costs: Factory OH - Variable $700 $500 - Fixed $700 $700 Marketing - Variable $1,000 $1,200 Administrative - Fixed $400 $400 Required: 1. Income statements for each of the years based on absorption costing. 2. Income statements for each of the years based on variable costing. 3. A reconciliation and explanation of the differences in the operating income for each year resulting from the use of absorption costing and variable costing. 4. Critics have claimed that widely used accounting system had let to undesirable building of inventory levels. (a)Which inventory method, variable costing or absorption costing, is more likely to lead to such buildups? Why? (b) What can be done to counteract undesirable inventory buildups