Zaki Metal Company produces the steel wire that is used for the production of paper clips. In 2009, the first year of operations, Zaki produced 40,000 miles of wire and sold 30,000 miles. In 2010 , the production and sales results were exactly reversed. In each year, the selling price per mile was \(\$ 80\), variable manufacturing costs were \(25 \%\) of the sales price of units produced, variable selling expenses were \(\$ 6\) per mile sold, fixed manufacturing costs were \(\$ 1,200,000\), and fixed administrative expenses were \(\$ 200,000\).

Instructions:

(a) Prepare income statements for each year using variable costing.

(b) Prepare income statements for each year using absorption costing.

(c) Reconcile the differences each year in net income under the two costing approaches.

(d) Comment on the effects of production and sales on net income under the two costing approaches.