Requirement $1.$ For $20$X$0,$ prepare income statements based on standard variable $($direct$)$ costing and standard absorption costing.

Begin with the standard variable$-$costing income statement. First, complete the income statement through the contribution margin, then complete the rest of the income statement. $($For amounts with a $\backslash (\backslash$$ $0\backslash )$ balance, make sure to enter $"0"$ in the appropriate cell.$)$

Stuart Company

Income Statement

For the Year Ended December $31,20$X$0$

Add:

Deduct: Operating income

Now prepare the standard absorption$-$costing income statement. First, complete the income statement through the gross profit, at standard, then complete the rest of the income statement. $($For amounts with a $\backslash (\backslash$$ $0\backslash )$ balance, make sure to enter $"0"$ in the appropriate cell.$)$

Stuart Company

Income Statement

For the Year Ended December $31,20$X$0$

Add:

Deduct:

Requirement $2.$ Explain why operating income differs between variable costing and absorption costing. Be specific.

When inventories increase, operating income will be higher under

If inventories decrease, operating income will be higher under

Determine the formula, then compute the difference.

x $\backslash (=\backslash )$ Difference

x

$\backslash (=\backslash )$

Data table