Problem 3 (Variable Costing Income Statement; Reconciliation) During Floppy Company's first two years of operations, the company reported net operating income as follows (absorption costing basis): Year 1 P1,000,000 Year 2 P1,500,000 0 170,000 Sales (at P50 per unit) Less cost of goods sold: Beginning inventory Add cost of goods manufactured (at P34 per unit) Goods available for sale Less ending inventory (at P34 per unit) Cost of goods sold Gross margin Less selling and administrative expenses* Net operating income 850,000 850,000 170,000 680,000 320,000 310,000 p 10,000 850,000 1,020,000 0 1,020,000 480,000 340,000 P 140,000 * P3 per unit variable; P250,000 fixed each year. P8 10 2 The company's P34 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead..... Fixed manufacturing overhead (P350,000 +25,000 units) Unit product cost 14 P34 Production and cost data for the two years are given below: Year 1 Units produced 25,000 Units sold..... 20,000 Year 2 25,000 30,000 Required: 1. Prepare an income statement for each year in the contribution format using variable costing 2 Reconcile the absorption costing and variable costing net operating income figures for each year