Reference no: EM13518985

Duif Company's absorption costing income statements for the last two years are presented below:

	Year 1	Year 2
Sales	$70,000	$90,000
Less cost of goods sold:
Beginning inventory	0	6,000
Add cost of goods manufactured	48,000	48,000
Goods available for sale	48,000	54,000
Less ending inventory	6,000	0
Cost of goods sold	42,000	54,000
Gross margin	28,000	36,000
Less selling & admin. expenses	25,000	31,000
Net operating income	$ 3,000	$ 5,000

Data on units produced and sold in each of these years are given below:

	Year 1	Year 2
Units in beginning inventory	0	1,000
Units produced	8,000	8,000
Units sold	7,000	9,000

Fixed factory overhead totaled $16,000 in each year. This overhead was applied to products at a rate of $2 per unit. Variable selling and administrative expenses were $3 per unit sold.

Required:

a. Compute the unit product cost in each year under variable costing.

b. Prepare new income statements for each year using variable costing.

c. Reconcile the absorption costing and variable costing net operating income for each year.