1. The ROZAR sells its HAIRBRUSH at $5 per unit. The following data are related to its first two years of operation:

	2008	2009
SALES	1100	1300
PRODUCTION	1500	1100
COST: Variable manufacturing Fixed manufacturing Variable operating (marketing) Fixed operating (marketing)	800 800 1100 500	600 800 1300 500

Required

a. Prepare income statements based on variable costing for each of the two years.

b. Prepare income statements based on absorption costing for each of the two years.

c. Prepare a numerical reconciliation and explanation of the difference between operating income for each year under absorption costing and variable costing.

d. Critics have claimed that a widely used accounting system has led to undesirable buildups of inventory levels. (i) Is variable costing or absorption costing more likely to lead to such buildups? Why? (ii) What can be done to counteract undesirable inventory buildups?