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Thompson Inc. manufactures and sells a single product. Current year sales volume was 50,000 units at a selling price of $86 per unit. Direct Material

Thompson Inc. manufactures and sells a single product. Current year sales volume was 50,000 units at a selling price of $86 per unit. Direct Material and Direct Labour cost amount to $28 per unit. Variable Manufacturing overhead costs were $13 per unit and Fixed Manufacturing costs were $455,000 per year. There were no beginning inventories, and 65,000 units were produced during the year. Variable selling and general administrative costs were $4.50 per unit sold plus Fixed selling and general administrative costs of $765,000 for the year.

Required: 1. Prepare an absorption costing income statement for the year. 2. Prepare a variable costing income statement (CM) for the year. 3. Reconcile the difference between the two statements and state why the net income is different between the two methods.

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