1. Vernon Inc. manufactures and sells one product. Sales and production information is contained below.

· Selling price per unit $50
· Variable manufacturing costs per unit produced (DM, DL, and variable MOH) $24
· Variable operating expenses per unit sold $5
· Fixed manufacturing overhead (MOH) in total for the year $135,000
· Fixed operating expenses in total for the year $55,000
· Units produced during the year 15,000
· Units sold during the year 13,000

(a) Prepare the income statement using variable costing.

(b) Prepare the income statement using absorption costing.

(c) Please explain the difference in operating income between the two methods.