Timberlake Co. had the following operating data for its first two years of operations:

Variable costs per unit:

DM $3

DL $2

Var. Overhead $1

Fixed costs per year:

Overhead $120,000

S&A 163,800

Timberlake produced 30,000 units in the first year and sold 26,000. In the second year, it produced 26,000 units and sold 30,000 units. The selling price per unit each year was $24. Timberlake uses an actual cost system for product costing.

Required:

1. Prepare income statements for both years using absorption costing. Has firm performance, as measured by income, improved or declined from Year 1 to Year 2?

2. Prepare income statements for both years using variable costing. Has firm performance, as measured by income, improved or declined from Year 1 to Year 2?

1. Calculate the Year 1 value of ending inventory under absorption costing and

under variable costing.