Ceramtics manufactures a high-speed ceramic switch used in the telecommunications industry. Data about Ceramtics's operations for 2017 and 2018 are presented below:

Ceramtics had no beginning inventories in 2017. To simplify the computations, assume
Ceramtics has only manufacturing expenses (i.e., there are no selling, administration, distribution, or interest expenses and no taxes). Ceramtics uses the FIFO method for inventory costing. Assume that budgeted volume and actual volume are the same, budgeted fixed and actual fixed overhead are the same, and budgeted variable and actual variable overhead per switch are the same. In other words, at the end of the year there is no over- or under-absorbed overhead.
Required:
a. Prepare income statements for 2017 and 2018 using absorption costing.
b. Prepare income statements for 2017 and 2018 using variable costing.
c. Reconcile any differences in income for 2017 and 2018 between absorption costing and variable costing from parts (a) and (b). That is, explain why absorption and variable costing give different net income numbers in 2017 and 2018?

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Ceramtics Summary of Operations 2017 and 2018 2017 2018 Sales price/switch $4,400 $4,400 2,000 1,600 Number of switches sold 2,000 Number of switches produced Fixed manufacturing costs Variable manufacturing costs per switch 2,400 $2.4 million $2.4 million $2,800 $2,800