The Cost Structure for Chiang Company,which Began Operations on January

Essay

The cost structure for Chiang Company,which began operations on January 1,is provided below:
$\begin{array}{ll}\text { Direct materials } & \$ 18 \text { per unit } \\\text { Direct labor } & \$ 14 \text { per unit } \\\text { Manufacturing overhead: } & \\\text { Variable } & \$ 8 \text { per unit } \\\text { Fixed } & \$ 20,000(\$ 5.00 \text { per unit })\end{array}$ $$\text { Fixed selling and administative } \quad\quad \$ 12,000$$ Variable selling and administrative costs are $4 per unit sold.
During the year,the company produced 4,000 units and sold 3,500 units at the $60 selling price.
Required:
1)Prepare an income statement under absorption costing.
2)Prepare an income statement under variable costing.
3)Explain the difference between the two income amounts.
4)What absorption costing disadvantage does this exercise emphasize?