| 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 |
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 |
