Question

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

	2018	2019
Sales ($46 per unit)	$920,000	$1,840,000
Cost of goods sold ($31 per unit)	620,000	1,240,000
Gross margin	300,000	600,000
Selling and administrative expenses	290,000	340,000
Net income	$10,000	$260,000

Additional Information 

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

	2018	2019
Units produced	30,000	30,000
Units sold	20,000	40,000

b. Variable cost per unit and total fixed costs are unchanged during 2018 and 2019. The company's $31 per unit product cost consists of the following. 

Direct materials	$5
Direct labor	9
Variable overhead	7
Fixed overhead ($300,000//30, 000 units )	10
Total product cost per unit	$31

c. Selling and administrative expenses consist of the following. 

	2018	2019
Variable selling and administrative expenses ($2.50 per unit )	$50,000	$100,000
Fixed selling and administrative expenses	240,000	240,000
Total selling and administrative expenses	$290,000	$340,000

Required 

.1. Prepare income statements for the company for each of its first two years under variable costing. Check (1) 2018 net loss, $190,000) 

2. Prepare a table as in Exhibit 19.12 to convert variable costing income to absorption costing income for both 2018 and 2019.

Answer 1

2019 1840000 Requirement:1 Dowell company Variable costing Income Statement 2018 Sales ( @46 Per unit) 920000 Variable Costs Direct Material (@5) 100000 Direct Labor (@9) 180000 Variable Overhead (@7) 140000 Variable Selling and Administrative Expense (@2.5) 50000 Total Varible costs 470000 Contribution Margin 450000 Less: Fixed Expenses Fixed Selling and Administrative Expenses 240000 Fixed Overheads 300000 Total fixed Expenses 540000 Net Income or (loss) -90000 200000 360000 2800001 100000 940000 900000 240000 300000 540000 360000

Requirement: 2 Dowell company Reconcilliation the variable costing to Absorption costing Income 2018 2019 Variable Costing Income (loss) -90000 360000 Add: Fixed over head in ending inventory 100000 Less: Fixed over head in beginning inventory -100000 Absorption Costing Income or (loss) 10000 260000