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) $ 966,000 $ 1,886,000 Cost of goods sold ($31 per unit) 651,000 1,271,000 Gross margin 315,000 615,000 Selling and administrative expenses 282,000 322,000 Net income $ 33,000 $ 293,000 Additional Information Sales and production data for these first two years follow. 2016 2017 Units produced 31,000 31,000 Units sold 21,000 41,000 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 ($310,000/31,000 units) 10 Total product cost per unit $ 31 Selling and administrative expenses consist of the following. 2016 2017 Variable selling and administrative expenses ($2 per unit) $ 42,000 $ 82,000 Fixed selling and administrative expenses 240,000 240,000 Total selling and administrative expenses $ 282,000 $ 322,000 1. Complete income statements for the company for each of its first two years under variable costing. (Loss amounts should be entered with a minus sign.)

Answer 1

1
Variable costing Income Statement
	2016	2017
Sales	966000	1886000
Less: Variable costs
Direct materials	84000	164000
Direct labor	168000	328000
Variable overhead	189000	369000
Variable selling and administrative expenses	42000	82000
Total variable costs	483000	943000
Contribution margin	483000	943000
Less: Fixed expenses
Fixed overhead	310000	310000
Fixed selling and administrative expenses	240000	240000
Total Fixed expenses	550000	550000
Net income(loss)	(67000)	393000