Dowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow.
|Sales ($46 per unit)||$||920,000||$||1,840,000|
|Cost of goods sold ($31 per unit)||620,000||1,240,000|
|Selling and administrative expenses||285,000||330,000|
a. Sales and production data for these first two years follow.
b. 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.
|Fixed overhead ($300,000/30,000 units)||10|
|Total product cost per unit||$||31|
c. Selling and administrative expenses consist of the following.
|Variable selling and administrative expenses ($2.25 per unit)||$||45,000||$||90,000|
|Fixed selling and administrative expenses||240,000||240,000|
|Total selling and administrative expenses||$||285,000||$||330,000|
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
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
|Less: Variable costs|
|Variable selling and administrative expenses||45000||90000|
|Total variable costs||465000||930000|
|Less: Fixed expenses|
|Fixed selling and administrative expenses||240000||240000|
|Total Fixed expenses||540000||540000|
|Variable costing income(loss)||-85000||370000|
|Add: Fixed overhead in ending inventory||100000|
|Less: Fixed overhead in beginning inventory||-100000|
|Absorption costing income(loss)||15000||270000|
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