Question

Problem 06-1A Variable costing income statement and conversion to absorption costing income (two consecutive years) LO P2, P3 [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. 2018 2019 Sales ($46 per unit) $ 920,000 $ 1,840,000 Cost of goods sold ($31 per unit) 620,000 1,240,000 Gross margin 300,000 600,000 Selling and administrative expenses 295,000 345,000 Net income $ 5,000 $ 255,000 Additional Information Sales and production data for these first two years follow. 2018 2019 Units produced 30,000 30,000 Units sold 20,000 40,000 Variable cost per unit and total fixed costs are unchanged during 2018 and 2019. The company's $31 per unit product cost consists of the following. Direct materials $ 5 Direct labor 9 Variable overhead 7 Fixed overhead ($300,000/30,000 units) 10 Total product cost per unit $ 31 Selling and administrative expenses consist of the following. 2018 2019 Variable selling and administrative expenses ($2.5 per unit) $ 50,000 $ 100,000 Fixed selling and administrative expenses 245,000 245,000 Total selling and administrative expenses $ 295,000 $ 345,000 Problem 06-1A

Part 1 1. Prepare income statements for the company for each of its first two years under variable costing. (Loss amounts should be entered with a minus sign.)

2. Prepare a table as in Exhibit 6.12 to convert variable costing income to absorption costing income for both 2018 and 2019. (Loss amounts should be entered with a minus sign.)

Answer 1