Graham Warner started Warner’s Watches four years ago. His business has grown handsomely, and he now produces and sells thousands of watches each year. Selected operational and financial data are shown below.
Units in beginning inventory ........ 0
Units produced .............25,000
Units sold ...............20,000
Selling price per unit ..............$ 100
Variable costs per unit:
Direct materials ............$ 10.00
Direct labor ...............30.00
Manufacturing overhead ...........4.00
Selling and administrative .........1.00
Fixed costs in total:
Manufacturing overhead ........$400,000
Selling and administrative ........$300,000

Required
A. Calculate Warner’s Watches’ net income using variable costing.
B. Calculate Warner’s Watches’ net income using absorption costing.