B. From a product-costing perspective, what is the basic difference between absorption costing and variable costing? C. Olympic Inc. is operating at 70% capacity and is considering a proposal to increase current production by 20%. Which costing method, absorption or variable, should be used to evaluate the proposal and why? What are the advantages and disadvantages of each method?

On August 31, the end of the first year of operations, during which 18,000 units were manufactured and 13,500 units were sold, Olympic Inc. prepared the following income statement based on the variable costing concept: $297,000 $288,000 72,000 Olympic Inc. Income Statement For Year Ended August 31, 20-- Sales Variable cost of goods sold: Variable cost of goods manufactured Less ending inventory Variable cost of goods sold Manufacturing margin Variable selling and administrative expenses Contribution margin Fixed costs: Fixed manufacturing costs Fixed selling and administrative expenses Income from operations 216,000 $ 81,000 40,500 $ 40,500 $ 12,000 10,800 22,800 $ 17,700