Create income statements under absorption and variable costing; discuss reasons for differences between the two.

Costner Company uses an absorption costing system in accounting for the single product it manufactures. The following selected data are for the year 2018:

Income Statement under Absorption Costing BRADLEY COMPANY Income Statement For the Period Ending May 31, 2019 Sales (9,000 units at $8) $72,000 Cost of goods sold: Variable costs of production (10,000 units at $3.30) $33,000 Fixed overhead costs 6,000 Total costs of producing 10,000 units $39,000 Less: Ending inventory (1,000 units at $3.90) 3,900 35, 100 Gross margin on sales $36,900 Operating expenses: Selling expenses ($15,000 fixed plus 9,000 at $0.20 each) $16,800 Administrative expenses 12,000 28,800 Income before income taxes $ 8, 100 Contribution Margin Income Statement under Variable Costing BRADLEY COMPANY Income Statement For the Period Ending May 31, 2019 Sales (9,000 units at $8) $72,000 Variable costs: Variable production costs incurred (10,000 units at $3.30) $33,000 Less: Ending inventory (1,000 units at $3.30) 3,300 29,700 Manufacturing margin $42,300 Variable selling expenses (9,000 units at $0.20) 1,800 Contribution margin $40,500 Fixed costs: Manufacturing overhead $ 6,000 Selling expenses 15,000 Administrative expenses 12,000 33,000 Income before income taxes $ 7,500Sales (10,000 units) $360,000 Direct materials used (variable cost) 129,600 Direct labor costs (variable cost) 43,200 Variable manufacturing overhead 12,960 Fixed manufacturing overhead 17,280 Variable selling and administrative expenses 21,600 Fixed selling and administrative expenses 72,000