Question

Required information [The following information applies to the questions displayed below.] Dowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow Sales ($44 per unit) cout of goods sold ($29 per unit) Gross margin Selling and administrative expenses Net income 2018 2019 $880,000 $1,760,000 580,000 1,160,000 300,000 600,000 285,000 325,000 $ 15,000 $275,000 Additional Information a. Sales and production data for these first two years follow. Units produced 2018 30,000 20,000 2019 30,000 40,000 Units Bold b. Variable cost per unit and total fixed costs are unchanged during 2018 and 2019. The company's $29 per unit product cost consists of the following. Direet materiala 14 15 of 17 Next >

Answer 1

1.

Dowell Company
Variable Costing Income Statement
	2018	2019
Sales revenue	880000	1760000
Variable expenses:
Direct materials	100000	200000
Direct labor	160000	320000
Variable overhead	120000	240000
Variable selling and administrative expenses	40000	80000
Total variable expenses	420000	840000
Contribution margin	460000	920000
Fixed expenses:
Manufacturing overheads	300000	300000
Selling and administrative expenses	245000	245000
Total fixed expenses	545000	545000
Net income (loss)	-85000	375000

2.

DOWELL COMPANY
Reconciliation of Variable Costing Income to Absorption Costing Income
	2014	2015
Variable costing income (loss)	-85000	375000
Add: Fixed manufacturing overheads in ending inventory [(30000 - 20000) x $10]	100000	0
Less: Fixed manufacturing overheads in beginning inventory (10000 x $10)	0	100000
Absorption costing income (loss)	15000	275000

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