Smidt & Sons produces a single product and has the following operating data:
| 2010 | 2011 | 2012 | |
| Units produced | 22,000 | 16,000 | 15,000 |
| Units sold | 20,000 | 15,000 | 18,000 |
| Fixed manufacturing overhead | $800,000 | $880,000 | $950,000 |
| Variable manufacturing cost | $3.00 | $3.10 | $3.20 |
| Variable selling costs | $0.25 | $0.30 | $0.35 |
| Selling price | $45.00 | $50.00 | $53.00 |
| The firm uses FIFO inventory | costing and there was no | beginning inventory | in 2010. |
Required:
a. Calculate net income using absorption costing.
b. Calculate net income using variable costing.
c. Reconcile the annual differences between the two costing methods.
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