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) |
|
|
|