Question

Problem 19-1A Part 1 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.) Required Information Problem 19-1A Variable costing income statement and conversion to absorption costing income (two consecutive years) LO P2, P3 [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 ($48 per unit) Cost of goods sold ($33 per unit) Gross margin Selling and administrative expenses Net income 2016 2017 $1,152,800 $2,112,800 792,200 1,452,800 360,800 660,800 305,882 355,800 $ 55,200 $ 305,000 DOWELL Company Variable Costing Income Statements 2016 2017 Sales 1.152.000 $ 2,112,000 Less: Variable costs Direct materials Direct labor Variable overhead Variable selling and administrative expenses Additional Information a. Sales and production data for these first two years follow. Contribution margin Less: Fixed expenses Fixed overhead Fixed selling and administrative costs Units produced Units sold 2016 34,00 24,000 2017 34,000 44,000 245,000 245,000 245,000 245,000 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. Total fixed expenses Net income (loss) Problem 19-1A Part 2 Direct materials Direct labor Variable overhead Fixed overhead ($340,000/ 34,000 units) Total product cost per unit 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.) c. Selling and administrative expenses consist of the following. DOWELL COMPANY Reconciliation of Variable Costing Income to Absorption Costing Income 2016 2017 Variable costing income (loss) Variable selling and administrative expenses ($2.5 per unit) Fixed selling and administrative expenses Total selling and administrative expenses 2016 $69.899 245,899 $305,200 2017 $110.89 245,800 $355,800 Absorption costing income (loss)

Answer 1

1. Calculation of Unit cost Under Variable Costing Direct Material Direct Labour Variable Manufacturing Overhead 23 23 Income Statement Under Variable Costing 2016 2017 sales (@48) 1152000 2112000 Variable Expense Variable Cost Of Goods Sold (@23) 552000 1012000 Variable Selling and Administrative Expense (@2.5) 60000 110000 Total Varible Expenses 612000 1122000 Contribution Magin 540000 990000 Fixed Expenses Fixed mufacturing Overheads 340000 340000 Fixed Sellingand Administrative Expenses 245000 245000 Total fixed Expenses 585000 585000 Net Operating Income -45000 405000

2) Diffrence between the Abosrption net income and variable costing net income Reconcile the variable costing and absorption costing Net income 2016 2017 Variable Costing Income(Loss) -45000 405000 Add: Fixed overheads in ending inventory 100000 LESS: FixedOverheads in beginning inventory -100000 Absorption Costing Income(loss) 55000 305000 Working Note -1 Units Produced Units Sold Difference in units =( Produces -Sold) Difference in manufacturing overheads = ( Difference in units * fixed manufacturing OH per unit) 2016 34000 24000 10000 2017 34000 44000 -10000 1,00,000 -100000