Yale Company manufactures hair brushes that sell at wholesale for $3 per unit. The company had no beginning inventory in the prior year. These data summarize the current and prior year operations:

	Prior Year			Current Year
Sales		1,800	units		2,200	units
Production		2,000	units		2,000	units
Production cost
Factoryvariable (per unit)	$	0.60		$	0.60
fixed	$	1,000		$	1,000
Marketingvariable	$	0.40		$	0.40
Administrativefixed	$	500		$	500

Required:

1. Prepare an income statement for each year based on full costing.

2. Prepare an income statement for each year based on variable costing.

3. Prepare a reconciliation of the difference each year in the operating income resulting from using the full costing method and variable costing method.

Req. 1

Prepare an income statement for each year based on full costing.

YALE COMPANY
Full Costing
Income Statement
	Prior Year		Current Year
Less: Cost of goods sold
Available for sale
Cost of goods sold
Gross margin
Less: Selling and administrative costs
Operating income

Req 2

Prepare an income statement for each year based on variable costing.

YALE COMPANY
Variable Costing
Income Statement
	Prior Year		Current Year
Less: Cost of goods sold
Available for sale
Cost of goods sold
Contribution margin
Less: Selling and administrative costs
Operating income

rEQ. 3

Prepare a reconciliation of the difference each year in the operating income resulting from using the full costing method and variable costing method. (Negative amounts should be indicated by a minus sign. Round your "Fixed overhead rate" answers to 2 decimal places.)

YALE COMPANY
Reconciling Difference in Operating Income Between Full and Variable Costing
	Prior Year	Current Year
Change in inventory in units
x fixed overhead rate
Difference in operating income