Question

Required information (The following information applies to the questions displayed below) Dowell Company produces a single product. It income statements under absorption costing for its first two years of operation follow 2018 2019 Sales ($44 per unit) $1,056,000 $1,936,000 Cost of goods sold ($29 per unit) 696,000 1,276,000 Gross margin 360,000 660,000 Selling and administrative expenses 299.000 344,000 Net Income 61,000 $ 316,000 Additional Information a. Sales and production data for these first two years follow. Units produced Units sold 2018 2019 34,000 34,000 24,000 44,000 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 URDU Direct materials Direct labor Variable overhead Fixed overhead ($340,000/34,828 units) Total product cost per unit 10 $29 c. Selling and administrative expenses consist of the following Variable selling and administrative expenses ($2.25 per unit) Fixed selling and administrative expenses Total selling and administrative expenses 2018 2019 $ 54,000 $ 99,000 245,000 245,000 $299,000 $344,000 2. Prepare a table as in Exhibit 6.12 to convert variable costing Income to absorption costing income for both 2018 and 2019. (Loss amounts should be entered with a minus sign.) DOWELL COMPANY Reconciliation of Variable Costing Income to Absorption Costing Income 2018 2019 Variable costing income (loss) Absorption costing income (loss)

Answer 1

	unit product cost under variable costing
	direct materials				5
	direct labor				9
	variable MOH				5
	unit product cost under variable costing				19
	units sold				24,000	44,000
			income statement
					year 1	year 2
	Sales				1056000	1936000
	less:Variable expenses
	Cost of goods sold ($20)				456000	836000
	selling & adm expense ($2.25)				54000	99000
	total variable expense				510000	935000
	Contribution margin				546000	1001000
	Fixed expenses
	fixed manufacturing overhead				340,000	340,000
	fixed selling and adm expense				245,000	245,000
	total fixed expense				585,000	585,000
	net income(loss)				-39,000	416,000
2)	Reconciliation of variable costing
						2014	2015
	Variable costing income(loss)					-39,000	416,000
	Add foh deferred in ending inventory(10000*10)					100,000
	less foh realsed in beginning inventory						-100,000
	Absorption costing income(loss)					61,000	316,000