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The Jones Company manufactures and sells a unique electronic part. The company's plant is highly automated with low variable and high xed manufacturing costs. Operating results on an absorption costing basis for the rst three years of activity were as follows: Year 1 Year 2 Year 3 Sales $704 000 $528 000 $704 000 Cost of goods sold: Beginning inventory 0 0 220,000 Cost of goods 520,000 550,000 496,000 manufactured Ending inventory 0 1220,0001 186,000! Cost of goods sold 520,000 330,000 530 000 Gross margin 184,000 198,000 174 000 Less selling and 180,000 160,000 180 000 administrative expense Operating income $4, 000 $38,000 i! 6,000! (loss) Sales in units 40,000 30,000 40,000 Production in units 40,000 50,000 32,000 Additional information about the company is as follows: -Variable manufacturing costs (direct labour, direct materials, and variable manufacturing overhead) total $3 per unit, and xed manufacturing overhead costs total $400,000. -Fixed manufacturing costs are applied to units of product on the basis of the number of units produced each year (i.e., a new xed overhead rate is computed each year). -The company uses a FIFO inventory ow assumption. -Variable selling and administrative expenses are $2 per unit sold. Fixed selling and administrative expenses total $100,000. Required: a) Compute operating income for year 2 and 3 under the variable costing approach. b) Prepare a reconciliation from your Operating Income (loss) under variable costing to Absorption Costing operating income for year 3