Question

[The following information applies to the questions displayed below.] Dowell Company produces a single product. Its...

[The following information applies to the questions displayed below.]

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

  1. Sales and production data for these first two years follow.
2016 2017
Units produced 31,000 31,000
Units sold 21,000 41,000
  1. 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 9
Variable overhead 8
Fixed overhead ($310,000/31,000 units) 10
Total product cost per unit $ 31
  1. 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.)

DOWELL Company
Variable Costing Income Statements
2016 2017
Net income (loss)

Homework Answers

Answer #1
1
Variable Costing Income Statements
2016 2017
Sales 966000 1886000
Less: Variable costs
Direct materials 84000 164000
Direct labor 189000 369000
Variable overhead 168000 328000
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
Workings:
2016 2017
Direct materials =21000*4 =41000*4
Direct labor =21000*9 =41000*9
Variable overhead =21000*8 =41000*8
Variable selling and administrative expenses =21000*2 =41000*2
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