Variable Costing Income Statement; Explanation of Difference in Net Operating Income LO6–2 Refer to the data in Exercise 6–1 for Ida Company. The absorption costing income statement prepared by the company’s accountant for last year appears as shown:

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 191,250 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157,500 Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,750 Selling and administrative expense . . . . . . . . . . . . . 24,500 Net operating income . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,250 Required:

1. Under absorption costing, how much fixed manufacturing overhead cost is included in the company’s inventory at the end of last year?

2. Prepare an income statement for last year using variable costing. Explain the difference in net operating income between the two costing methods.