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		1,900	units		2,500	units
Production		2,200	units		2,200	units
Production cost
Factoryvariable (per unit)	$	0.60		$	0.60
fixed	$	1,100		$	1,100
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.

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

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

• 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

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	$0	$0