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Question 3 Absorption vs. Variable Costing (12 marks) Asante Inc.'s income statement and information for its first year of operations, 2018, is given below. Capacity: Able to produce up to 200,000 units Produced during 2018: 150,000 units Sold during 2018: 120,000 units Fixed Manufacturing Overhead: $150,000 Fixed Selling and Admin: $130,000 Variable Selling and Admin: Commission on sales of 2% and packaging of $1 per unit Sales Less: Cost of goods sold Gross Margin Less: Selling & Admin Expenses Operating Income $ 1,200,000 $ 480,000 $ 720,000 $ 274,000 $ 446,000 a. Create an income statement under variable costing for 2018. b. Explain the difference, if any, between the operating income under the variable costing income statement for 2018 and the operating income given in the question above for 2018. c. The CEO is unhappy with the performance of 2018 and recommends the following changes for 2019: Decrease selling price by 10% which will increase volume to be sold to 150,000 units. In order to achieve the higher volume of sales, fixed selling and admin will have to be increased to $160,000 Also, due to economies of scale, the packaging costs will reduce by 20%. There would be no change in quantities produced. What would be the expected operating income of 2019 under absorption costing