Answer:
When you are calculating variable costing, COGS only includes variable costs. All fixed costs are included as period costs at the end. Fixed costs are not carried forward either.        
              <u> Income Statement (variable costing) - J Cool Sky</u>
total sales $140 x 36,000 units sold =                                   $5,040,000
variable COGS                                                                        ($3,240,000)
variable direct costs ($60 + $22) x 36,000 = ($2,952,000)
<u>variable overhead ($8 x 36,000)                       ($288,000)                       </u>        
manufacturing margin                                                              $1,800,000
<u>variable administrative and selling costs ($11 x 36,000) =     ($396,000)  </u>  
contribution margin                                                                   $1,404,000
fixed costs                                                                                  ($633,000)
fixed overhead =                                               ($528,000)
<u>administrative and selling =                              ($105,000)                           </u> 
net income                                                                                    $771,000
In order to prepare the income statement using absorption costing, we must first determine COGS = [(total variable manufacturing costs + total fixed manufacturing costs) / total output] x units actually sold
COGS = {[($60 + $22 + $8) x 44,000] + $528,000} / 44,000] x 36,000 = [($3,960,000 + $528,000) / 44,000] x 36,000 = $102 x 36,000 = $3,672,000
           <u> Income Statement (absorption costing) - J Cool Sky</u>
total sales $140 x 36,000 units sold =                                   $5,040,000
<u>COGS                                                                                      ($3,672,000)</u>
gross profit                                                                                $1,368,000
variable administrative and selling costs $11 x 36,000 =       ($396,000)    
<u>fixed administrative and selling costs                                      ($105,000)</u>
net income                                                                                  $867,000
The difference between both accounting methods is that variable costing includes all fixed manufacturing costs during the period and the ending inventory is carried forward only at a lower cost since it only includes variable costs. Absorption costing calculates ending inventory using the total fixed costs, that is why COGS is lower.