Using the full costing method, prepare the income statement for 2019.

Mark Hancock Inc. manufactures a specialized surgical instrument called the HAN-20. The firm has grown rapidly in recent years because of the product's low price and high quality. However, sales have declined this year primarily due to increased competition and a decrease in the surgical procedures for which the HAN-20 is used. The firm is concerned about the decline in sales and has hired a consultant to analyze the firm's profitability. The consultant was provided the following information: 2018 4,200 4,480 5,000 800 2019 3,800 3,320 4,400 1,080 Sales (units) Production Budgeted production and sales Beginning inventory Data per unit (all variable) Price Direct materials and labor Selling costs Fixed costs Manufacturing overhead Selling and administrative $ $ 2,095 1,200 125 1,995 1,200 125 $875,000 120,000 $770,000 120,000 Top management at Hancock explained to the consultant that a difficult business environment for the firm in 2018 and 2019 had caused the firm to reduce its price and production levels and reduce its fixed manufacturing costs in response to the decline in sales. Even with the price reduction, there was a decline in sales in both years. This led to an increase in inventory in 2018, which the firm was able to reduce in 2019 by further reducing the level of production. In both years, Hancock's actual production was less than the budgeted level so that the overhead rate for fixed overhead, calculated from budgeted production levels, was too low, and a production volume variance was calculated to adjust cost of goods sold for the underapplied fixed overhead (the calculation of the production volume variance is explained fully in Chapter 15 and reviewed briefly below). The production volume variance for 2018 was determined from the fixed overhead rate of $175 per unit ($875.000/5.000 budgeted units). Because the actual production level was 520 units short of the budgeted level in 2018 (5,000 - 4.480), the amount of the The production volume variance for 2018 was determined from the fixed overhead rate of $175 per unit ($875,000/5,000 budgeted units). Because the actual production level was 520 units short of the budgeted level in 2018 (5,000 -4,480), the amount of the production volume variance in 2018 was 520 * $175 = $91,000. The production volume variance is underapplied because the actual production level is less than budgeted, and the production volume variance is therefore added back to cost of goods sold to determine the amount of cost of goods sold in the full costing income statement. The full costng income statement for 2018 is shown below: 8,799,000 $1,100,000 6, 160,000 $7, 260,000 1,485,000 Sales Cost of goods sold: Beginning inventory Cost of goods produced Cost of goods available for Less ending inventory Cost of goods sold: Plus unfavorable production volume variance Adjusted cost of goods sold Gross margin Legs selling and administrative costs Variable Fixed Operating income $5,775,000 91,000 $5,866,000 $ 2,933,000 $ 525,000 120,000 645,000 $2,298,000 Required: 1. Using the full costing method, prepare the income statement for 2019. 2-a. Using variable costing, prepare an income statement for each period. 2-b. Prepare a reconciliation of the difference each year in the operating income resulting from the full- and variable-costing methods. MARK HANCOCK, INC., Full Costing Income Statement 2019 Cost of goods sold Cost of goods available for sale Cost of goods sold Adjusted cost of goods sold Gross margin Less: Selling and administrative cost Operating income