Can someone explain to me whats wrong with these statements? asked Cheri Reynolds, president of Milex Corporation.

€œCan someone explain to me what€™s wrong with these statements?€ asked Cheri Reynolds, president of Milex Corporation. €œThey just don€™t make sense. We sold the same number of units this year as we did last year, yet our profits have tripled! Who messed up the calculations?€
The absorption costing income statements to which Ms. Reynolds was referring are shown below:

In the first year, the company produced and sold 40,000 units; in the second year, the company again sold 40,000 units, but it increased production to 50,000 units, as shown below:

Milex Corporation applies fixed manufacturing overhead costs to its only product on the basis of each year€™s production.

Required:
1. Compute the unit product cost for each year under:
a. Absorption costing.
b. Variable costing.
2. Prepare a contribution format income statement for each year using variable costing.
3. Reconcile the variable costing and absorption costing net operating income figures for each year.
4. Explain to the president why the net operating income for Year 2 was higher than for Year 1 under absorption costing, although the same number of units was sold in each year.
5. a. Explain how operations would have differed in Year 2 if the company had been using Lean Production and inventories had been eliminated.
b. If Lean Production had been in use during Year 2 and ending inventories were zero, what would the company€™s net operating income have been under absorption costing? Explain the reason for any difference between this income figure and the figure reported by the company in the statementsabove.

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Year 1 Year 2 Sales (40,000 units each year) Cost of goods sold . $1,250,000 $1,250,000 840,000 720,000 530,000 350,000 $ 60,000 S 180,000 410,000 350,000 Selling and administrative expenses . Net operating income. Year 1 Year 2 Production in units... 50,000 40,000 40,000 $6 $2 $600,000 $600,000 40.000 Variable manufacturing cost per unit produced Variable selling and administrative expense per unit sold Fixed manufacturing overhead costs (total $6 $2