Salty Ocean is Enterprise has built a massive water-desalting factory next to an ocean. The factory is completely automated. The salt water costs nothing. It has both variable and fixed manufacturing costs. Its variable costs are RM.14 per gallon, its fixed manufacturing costs are RM510,000 per year and other fixed costs are RM225,000 per year. The employees have flat annual salaries. The desalted water is not sold to household consumers. It has a special taste that appeals to soft-drink manufacturers. The price, RM66 per gallon, is expected to remain unchanged for quite some time. The following are data regarding the first 2 years of operations: 1. Prepare three-column income statements for 2014, for 2015, and for the 2 years taken together using (a) variable costing and (b) absorption costing. 2. Reconcile the difference between the income reported for the year 2015 under variable costing and absorption costing using the shortcut approach. 3. What inventory costs would be carried on the balance sheets on December 31, 2014 and 2015, under each method? 4. Absorption and variable costing are two different methods of measuring income and costing inventory. Product costs are defined as costs associated with the manufacturing process. How does the operational definition of product cost differ between absorption costing and variable costing? 5. An absorption-costing income statement will report gross profit or gross margin whereas a variable-costing income statement will report contribution margin. What is the difference between these terms