Why is there a difference in Absorption and Variable costing in the scenario above?

Practice Quiz Varriable Costing Assume the following information Sales 12,000 Units Variable Cost/unit 8.00 Production Scenario 1 12,000 Units Fixed Mig. Costs 240,000 Scenario 2 48,000 Units Selling & Admin Exp 20,000 Selling Price/unit 18.00 (75% Variable) Scenario 1 Scenario 2 1. Prepare an income statement for both scenarios under the Absorption method of costing: Sales 216,000 $ 216,000 COGS $ 336,000 156,000 Gross Profit $ (120,000) 60,000 Selling & Admin Exp. 20,000 $ 20,000 Inc. from Operations $ (140,000) 40,000 2. Prepare an income statement for both scenarios under the Variable method of costing: Sales $ 216,000 Variable Mig. 96,000 96,000 Mfg Margin $ 120,000 120,000 Variable S & A 15,000 15,000 Contribution Margin 105,000 105,000 Fixed Mig 240,000 240,000 Fixed S & A 5,000 5,000 Inc. from Operations $ (140,000) S (140 000) Please answerr the following: 1. Why is there a difference in Absorption and Variable costing in the scenarios above? 2. Which cost structure is driven by production? Which is driven by sales? 3. Do you see the potential to manipulate earnings? What will be the long term impact on profit? 4. Which costing method would be most appropriate for decision making and why? (Use a product pricing example)