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)	$	1,012,000		$	1,932,000
Cost of goods sold ($31 per unit)		682,000			1,302,000
Gross margin		330,000			630,000
Selling and administrative expenses		289,000			329,000
Net income	$	41,000		$	301,000

Additional Information

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

	2016		2017
Units produced	32,000		32,000
Units sold	22,000		42,000

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 ($320,000/32,000 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 per unit)	$	44,000		$	84,000
Fixed selling and administrative expenses		245,000			245,000
Total selling and administrative expenses	$	289,000		$	329,000

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 Sales Less: Variable costs Net income (loss)

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 sign.)

	DOWELL COMPANY Reconciliation of Variable Costing Income to Absorption Costing Income 2016 2017 Variable costing income (loss) Absorption costing income (loss)

Answer 1