Tsuut'ina Inc. manufactures microphones for home computers. The variable cost per microphone is as follows:

Direct materials $3.50

Direct labour 2.50

Variable manufacturing overhead 3.00

Sales commission 0.90

Total variable cost per microphone $9.90

Other costs for Year 1 are fixed and include selling costs of $90,000, administrative costs of $55,000, and fixed manufacturing overhead of $302,250 per year. There was no beginning work-in-process or finished goods inventory in Year 1. During Year 1, a total of 65,000 microphones were manufactured, and 55,000 microphones were sold at $30 each. In Year 2, fixed manufacturing costs increased to $305,200. In Year 2, 60,000 microphones were sold for $32 with 56,000 manufactured. All other fixed and variable costs were unchanged in Year 2.

Which of the following statements is true?

Question 2 options:

Operating income under absorption costing would be $217,550 lower than the income under variable costing in Year 1.

Operating income under absorption costing would be $46,500 lower than the income under variable costing in Year 1.

Operating income under absorption costing would be $13,800 lower than the income under variable costing in Year 2.

Operating income under absorption costing would be $157,250 higher than the income under variable costing in Year 1.