WaterSafe Company produces a part used in the manufacture of aquarium filters. The following information pertains to the past three years of operations. WaterSafe Company uses FIFO costing.

Required:

A. Calculate the value of ending inventory and net income before taxes for each year under absorption costing.

B. Calculate the value of ending inventory and net income before taxes for each year under variable costing.

C. Explain the difference in net income before taxes under the absorption costing and variable costing approaches for each year.

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2015 2016 2017 Total 16,500 18,000 35,500 Units sold 15,000 18,000 Units produced 16,500 15,000 35,500 $600,000 $600,000 $600,000 Fixed production costs $165 $165 $165 Variable production costs per unit Selling price per unit $275 $275 $275 Fixed selling and administrative $150,000 $150,000 $150,000 expenses Variable selling and administrative $15 $15 $15 expenses per unit