Question

Dowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow. Sales ($48 per unit) Cost of goods sold ($33 per unit) Gross margin Selling and administrative expenses Net income 2016 2017 $1,104,000 $2,064,000 759,000 1,419,000 345,000 645,000 286,000 326,000 $ 59,000 $ 319,000 Additional Information a. Sales and production data for these first two years follow. Units produced Units sold 2016 33,000 23,000 2017 33,000 43,000 b. Variable cost per unit and total fixed costs are unchanged during 2016 and 2017. The company's $33 per unit product cost consists of the following. $ 5 Direct materials Direct labor Variable overhead Fixed overhead ($330,000/33,000 units) Total product cost per unit 10 $ 33 c. Selling and administrative expenses consist of the following. Variable selling and administrative expenses ($2 per unit) Fixed selling and administrative expenses Total selling and administrative expenses 2016 2017 $ 46,000 $ 86,000 240,000 240,000 $286,000 $326,000

Answer 1

Part 1 - Answer - Variable costing method and contribution calculation . Please follow step by step , All are formula driven and where ever as per Q ( mean as per Question )

Variable Costing - Dowell
		2016($)	2017($)	Source
Sales (a)		11,04,000	20,64,000	( as per Q)
Less :
Variable cost
Direct material(Rate * Unit sold)		1,15,000	2,15,000	($5/Unit *23000/ $5/ unit *43000)
Direct Labour(Rate * Unit sold)		1,84,000	3,44,000	($8/Unit *23000/ $8/ unit *43000)
Variable OH(Rate * Unit sold)		2,30,000	4,30,000	($10/Unit *23000/ $10/ unit *43000)
Variable Selling OH		46,000	86,000	( as per Q)
Total Variable cost(b)		5,75,000	10,75,000
Contribution(a-b)=D		5,29,000	9,89,000
Less : Fixed Cost
Fixed Selling and Admin		2,40,000	2,40,000	( as per Q)
Fixed Oh		3,30,000	3,30,000	( as per Q)
Total Fixed cost(c)		5,70,000	5,70,000
Net Contribution(D-c)		(41,000)	4,19,000

Dowell Copany produce
		2016($)	2017($)
Sales ( $48/ Unit)		11,04,000	20,64,000
Cost of goods sold		7,59,000	14,19,000
Gross Margin		3,45,000	6,45,000
Selling and Distribution Expenses		2,86,000	3,26,000
Net Income		59,000	3,19,000
Unit Produced		33,000	33,000
Units Sold		23,000	43,000
Total Product cost / Unit		Amt($)
Direct material		5
Direct Labour		8
Variable OH		10
Fixed OH($3,30,000/33000)		10
Total Product cost / Unit		33
Selling and Administrative cost		2016($)	2017($)
Variable Selling($2/unit)		46,000	86,000
Fixed Selling and Admin		2,40,000	2,40,000
Total Selling and Admin Cost		2,86,000	3,26,000

Reconciliation of Variable and Absorption Costing
Net Contribution ( as above )		2016($)	2017($)
( under Variable cost)		(41,000)	4,19,000
Add:
Fixed Manufacturing OH		1,00,000
at end of Inventory
( unit produced -33000 Unit )
Unit Sold-23000
Closing Inventory ( 33000-23000) *$10
Less
Fixed Manufacturing OH Opening Inventory			1,00,000
Absorption costing		59,000	5,19,000