Zipp Cards buys baseball cards in bulk from the companies that produce them. Zipp buys sheets of 48 cards, then cuts the sheets into individual cards, and sorts and packages them, usually by team. Zipp then sells the packages to large discount stores. The accompanying table provides information regarding operations for 2016 and 2017.

Volume is measured in terms of 48-card sheets processed. Budgeted production and actual production in 2016 were both 50,000 units. There were no beginning inventories on January 1, 2016. In 2017, budgeted and actual production rose to 75,000 units.

At the beginning of 2017, the president of Zipp was pleasantly surprised when the accountant showed her the income statement for the year 2016. The president remarked, ?I?m surprised we made more money in 2017 than 2016. We had to cut prices and we didn?t sell as many units, yet we still made more money. Well, you?re the accountant and these numbers don?t lie.?

Required:

a. Prepare income statements for 2016 and 2017 using absorption costing.

b. Prepare a statement reconciling the change in net income from 2016 to 2017. Explain to the president why the firm made more money in 2017 than in 2016.

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Zipp Cards-Summary of Operations 2016 2017 Unit sales (of 48 cards)* |Price Production in units (budgeted = actual) Variable cost Fixed manufacturing overhead 48,000 50,000 $ 5.00 $ 4.90 2$ 50,000 2$ 75,000 1.00 1.00 $160,000 $160,000