Walsh Company manufactures and sells one product. The following information pertains to each of the company's first two years of operations:

Variable costs per unit:Manufacturing:Direct materials$21Direct labor$14Variable manufacturing overhead$4Variable selling and administrative$3Fixed costs per year:Fixed manufacturing overhead$320,000Fixed selling and administrative expenses$80,000

During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company's product is $88 per unit.

. Reconcile the difference between variable costing and absorption costing net operating income in Year 1.

Year 1 Year 2

Variable costing net operating income (loss)

Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing

Deduct: Fixed manufacturing overhead cost released from inventory under absorption costing

Absorption costing net operating income (loss)