Question

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

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

2. What are the differences between the absorption costing income and the variable costing income for these two years? (Loss amounts should be entered with a minus sign.)

DOWELL COMPANY
Reconciliation of Variable Costing Income to Absorption Costing Income
2016 2017
Variable costing income (loss)
Absorption costing income (loss)

Homework Answers

Answer #2

2. What are the differences between the absorption costing income and the variable costing income for these two years?

DOWELL COMPANY
Reconciliation of Variable Costing Income to Absorption Costing Income
2016 2017
Variable costing income (loss) -27000 438000
Add: Fixed manufacturing overhead deferred in ending inventory (10000*10) 100000
Less: Fixed manufacturing overhead Released in ending inventory -100000
Absorption costing income (loss) 73000 338000
answered by: anonymous
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