Refer to the information for Vestibule in PB5-4. Additional information for Vestibule’s most recent year of operations follows:

Number of units produced ..................... 3,000

Number of units sold ..................... 2,800

Sales price per unit ..................... $30.00

Direct materials per unit .................. 3.00

Direct labor per unit ..................... 2.00

Variable manufacturing overhead per unit ............ 1.50

Fixed manufacturing overhead per unit ($15,000 / 3,000 units) .... 5.00

Total variable selling expenses ($1 per unit sold) ......... 2,800.00

Total fixed general and administrative expenses ........20,250.00

Required:

1. Without any calculations, explain whether Vestibule’s profit will be higher with full absorption costing or variable costing.

2. Prepare a full absorption costing income statement and a variable costing income statement for Vestibule. Assume there was no beginning inventory.

3. Compute the difference in profit between full absorption costing and variable costing.

Reconcile the difference.