Rhodes Inc. manufactures and sells a single product. Current year sales volume was 50,000 units at a selling price of $86 per unit. Direct materials and direct labour amount to $28 per unit. Variable manufacturing overhead costs were $13 per unit plus fixed costs of $455,000 per year. There were no beginning inventories and 65,000 units were produced during the year. Variable selling, general, and administrative costs were $4.50 per unit sold plus fixed costs of $765,000 for the year.

Required:

a. Prepare an absorption-costing income statement for the year.

b. Prepare a variable-costing income statement for the year.

c. Reconcile the difference between the two statements and explain why net income is different between the two costing approach