Dowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow.

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Dowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow.

 

    2014   2015
  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
a. Sales and production data for these first two years follow.

 

  2014 2015
  Units produced 32,000 32,000
  Units sold 22,000 42,000
 

 

b. Variable cost per unit and total fixed costs are unchanged during 2014 and 2015. 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
     
 

 

c. Selling and administrative expenses consist of the following.

 

    2014   2015
  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
 

 

0

Answer:

Dowell Company    
Income Statement (Variable CosTng)    
For Year Ended December 31, 2014    
  2014 2015
  22000 42000
Sales ($46 per units) 1012000 1932000
Variable expense    
Variable producTon costs(21 = 5+9+7) 462000 882000
Variable selling and administraTve cost 44000 84000
Total Variable expenses 506000 966000
ContribuTon margin 506000 966000
Fixed expenses    
Fixed overhead 320,000 320,000
Fixed selling and administraTve cost 245000 245000
Total fxed expenses 565,000 565,000
Net income -59,000 401,000

 

2

Explain any difference between the absorption costing income and the variable costingincome for these two years

  2014 2015
Variable costng income -59,000 401,000
Fixed overhead cosT deferred in ending
invenTory (10,000 x 10)
100,000  
Fixed overhead cosT recognized from beginning invenTory (10,000 x 10)   -100,000
Absorpton costng income 41,000 301,000

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