Full-Absorption versus Variable Costing: You have been given the following information concerning the All Fixed Company.

1. Sales: 10,000 units per year at a price of $46 per unit.

2. Production: 15,000 units in 1987; 5,000 units in 1988.

3. There was no beginning inventory in 1987.

4. Annual production costs are all fixed and equal $225,000 per year.

5. Ending finished goods inventory in 1987 was one third of that year's current production.

6. Annual marketing and administrative costs are $140,000 per year.

Required:

a. Prepare full-absorption costing income statements for 1987 and 1988, and for the two years taken together.

b. Prepare variable costing income statements for 1987 and 1988, and for the two years taken together.

c. Prepare a reconciliation of full-absorption operating profit to variable costing operating profit for 1987 and 1988.