Question

Dowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow.

		2016			2017
Sales ($46 per unit)	$	1,104,000		$	2,024,000
Cost of goods sold ($31 per unit)		744,000			1,364,000
Gross margin		360,000			660,000
Selling and administrative expenses		287,000			322,000
Net income	$	73,000		$	338,000

Additional Information

Sales and production data for these first two years follow.

	2016		2017
Units produced	34,000		34,000
Units sold	24,000		44,000

Variable cost per unit and total fixed costs are unchanged during 2016 and 2017. The company's $31 per unit product cost consists of the following.

Direct materials	$	4
Direct labor		8
Variable overhead		9
Fixed overhead ($340,000/34,000 units)		10
Total product cost per unit	$	31

Selling and administrative expenses consist of the following.

		2016			2017
Variable selling and administrative expenses ($1.75 per unit)	$	42,000		$	77,000
Fixed selling and administrative expenses		245,000			245,000
Total selling and administrative expenses	$	287,000		$	322,000

1. Complete income statements for the company for each of its first two years under variable costing.

Answer 1

Dowell company

Variable costing income statement

For the both years 2016 and 2017

	2016	2017
Sales	$1,104,000	$2,024,000
Variable cost of goods sold	504,000	924,000
Variable selling expenses	42,000	77,000
CONTRIBUTION MARGIN	$558,000	$1,023,000
Fixed expenses	585,000	585,000
Net operating income	$(27,000)	$438,000

Reconciliation of variable costing and absorption casting incomes

	2016	2017
Variable costing net operating income	$(27,000)	$438,000
Fixed mfg OH cost differed in( or released from )inventory	$100,000	$(100,000)
Absorption costing net operating income	$73,000	$338,000

Note : unit product cost under variable costing = unit product cost under absorption casting - fixed overhead cost per unit

=$31-10

=$21

:,Here negative values are quoted on brackets or parentheses

answered by: anonymous