The following information pertains to the companys first two years of operations:

Variable costs per unit:
Manufacturing:
Direct materials	$	25
Direct labor	$	12
Variable manufacturing overhead	$	4
Variable selling and administrative	$	3
Fixed costs per year:
Fixed manufacturing overhead	$	240,000
Fixed selling and administrative expenses	$	80,000

During its first year of operations:

• Units produced: 50,000
• Units sold 40,000

During its second year of operations,

• Units produced 40,000
• Units sold 50,000

The selling price of the companys product is $56 per unit.

Required:

1. Assume the company uses variable costing:

a. Compute the unit product cost for Year 1 and Year 2.

b. Prepare an income statement for Year 1 and Year 2.

2. Assume the company uses absorption costing:

a. Compute the unit product cost for Year 1 and Year 2.

b. Prepare an income statement for Year 1 and Year 2.

3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1.