Exercise #$4$: Review of Learning Objectives $1-3$: Variable and Absorption Costing.

Wentzel Company manufactures and sells one product. The following information pertains to each of the company's first two years of operations:

Variable costs per unit:

Direct materials

Direct labor

Variable manufacturing overhead

Variable selling and administrative $$10$

$$7$

Fixed costs per year: $,$$$1$

Fixed manufacturing overhead

Fixed selling and administrative

$$525,000$

During its first year of operations, Wentzel produced $75,000$ units and sold $60,000$ units. During its second year of operations, it produced $60,000$ units and sold $75,000$ units. The selling price of the company's product is $$58$ per unit.

Required:

Assume that the company uses variable costing:

a$.$ Compute the unit product cost for Year $1$ and Year $2.$

b$.$ Prepare an income statement for Year $1$ and Year $2.$

Assume that the company uses absorption costing:

a$.$ Compute the unit product cost for Year $1$ and Year $2.$

b$.$ Prepare an income statement for Year $1$ and Year $2.$

Explain the difference between variable costing and absorption costing net operating income in Year $1$ and in Year $2.$