Assume the same facts as in the preceding problem. In addition, consider the following actual data for 20X1:

Direct materials ……………… $ 262,000

Direct labor ……………………. 171,000

Variable factory overhead ……… 38,000

Fixed factory overhead ………. 143,500

Selling and administrative costs

Variable ………………………. 165,100

Fixed …………………………… 83,000

Sales …………………………. 1,252,400

1. For 20X1, prepare income statements based on standard variable (direct) costing and standard absorption costing.

2. Explain why operating income differs between variable costing and absorption costing. Be specific.