Question

Dowell Company produces a single product. Its Income statements under absorption costing for its first two years of operation follow Sales ($44 per unit) Cost of goods sold ($29 per unit) 2014 2015 $ 1056,000 $ 1,936,000 696,000 1.276,000 Gross margin Selling and administrative expenses 360,000 287,000 660,000 322,000 Net Income $ 73,000 $ 338,000 act Additional Information a Sales and production data for these first two years follow. co ing Units produced Units sold 2014 34,000 24,000 2015 34,000 44,000 finis! hanuf b. Variable cost per unit and total fixed costs are unchanged during 2014 and 2015. The company's $29 per unit product cost consists of the following. incor Direct materials Direct labor Variable overhead Fixed overhead ($340,000/34.000 units) Total product cost per unit HAN $ 29 Hardeer 46,484 c. Selling and administrative expenses consist of the following Variable selling and administrative expenses ($175 per unit) Fixed selling and administrative expenses 2014 2015 $42.000 $ 77,000 245.000 245.000 Variab Total selling and administrative expenses $ 287,000 $322.000 Add(les deferre Absor

Answer 1

1.

Dowell Company
Variable Costing Income Statement
	2014	2015
Sales revenue	1056000	1936000
Variable expenses:
Direct materials	120000	220000
Direct labor	192000	352000
Variable overhead	144000	264000
Variable selling and administrative expenses	42000	77000
Total variable expenses	498000	913000
Contribution margin	558000	1023000
Fixed expenses:
Manufacturing overheads	340000	340000
Selling and administrative expenses	245000	245000
Total fixed expenses	585000	585000
Net income (loss)	-27000	438000

2.

DOWELL COMPANY
Reconciliation of Variable Costing Income to Absorption Costing Income
	2014	2015
Variable costing income (loss)	-27000	438000
Add: Fixed manufacturing overheads in ending inventory [(34000 - 24000) x $10]	100000	0
Less: Fixed manufacturing overheads in beginning inventory (10000 x $10)	0	100000
Absorption costing income (loss)	73000	338000