Reese’s Tot Toy Boxes uses variable costing to manage its internal operations. The following data relate to the company’s first year of operation, when 25,000 units were produced and 21,000 units were sold.
Variable costs per unit
Direct material ............. $50
Direct labor ............ 30
Variable overhead ........... 14
Variable selling costs ......... 12
Fixed costs
Selling and administrative .... $750,000
Manufacturing .......... 500,000
How much higher (or lower) would the company’s first-year net income have been if absorption costing had been used rather than variable costing? Show computations.