Octavius Company produces a 10-inch chef knife used by commercial chefs. The knives sell for $50 each. In 2011, the company produced 45,000 units and sold 40,000 units. Below are variable and full costing income statements for 2011.

Required
Reconcile the difference in profit between the two incomestatements.

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Income Statement Prepared Using Variable Costing Octavius Company Income Statement For the Year Ending December 31,2011 Sales Less variable costs 2.000,000 Variable cost of goods sold Variable selling expense $600,000 160,000 760 1,240,000 Contribution margin Less fuced costs: Fixed manufacturing expense Fixed selling expense Fixed administrative expense 540,000 150,000 100,000 790,000 450,000 Net income Income Statement Prepared Using Full Costing Octavius Company Income Statement For the Year Ending December 31,2011 Sales Less cost of goods sold Gross margin Less selling and administrative expenses: 1,080,000 920,000 $310,000 Selling expense Administrative expense 410,000 510,000 Net income