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)	$	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		290,000			340,000
Net income	$	10,000		$	260,000

Additional Information

1. Sales and production data for these first two years follow.

	2016		2017
Units produced	30,000		30,000
Units sold	20,000		40,000

2. 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	$	5
Direct labor		9
Variable overhead		7
Fixed overhead ($300,000/30,000 units)		10
Total product cost per unit	$	31

3. Selling and administrative expenses consist of the following.

		2016			2017
Variable selling and administrative expenses ($2.50 per unit)	$	50,000		$	100,000
Fixed selling and administrative expenses		240,000			240,000
Total selling and administrative expenses	$	290,000		$	340,000

Problem 19-1A Part 1

Required:

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