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3. Reconcile the variable costing and absorption costing Net income YEAR 1 YEAR 2 Variable Costing Net Operating Income Add (Deduct) Fixed Manufacturing Overheads cost Deferred in (releasedFrom) inventor Absorption Costing Net Operating Income 2,000 2,000 12,000 -2,000 4,000 10,000 Working Note -1 Year 1 Year-2 Units Produced Units Sold Difference in units -(Produces -Sold) Difference in manufacturing overheads- (Difference in units* fixed manufacturing overheads per unit) 2 1000 9000 8000 1000 2,000 9000 10000 1000 -2,000

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