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 ($48 per unit) Cost of goods sold ($33 per unit) Gross margin Selling and administrative expenses Net income 2018 2019 $1,164,000 $2,064,000 759,000 1,419,000 345,000 645,000 297,500 347,500 $ 47,500 $ 297,500 Additional Information a. Sales and production data for these first two years follow. Units produced Units sold 2018 2019 33,000 33,000 23,000 43,000 b. Variable cost per unit and total fixed costs are unchanged during 2018 and 2019. The company's $33 per unit product cost consists of the following.

Answer 1

Income Statement Under Variable Costing 2018 2019 1104000 2064000 Sales (@48) Variable Expense Direct Material (@4) Direct Labour (@9) Variable Manufacturing Overhead (@10) Variable Selling and Administrative Expense (@2.5) Total Varible Expenses Contribution Magin Fixed Expenses Fixed mufacturing Overheads Fixed Sellingand Administrative Expenses Total fixed Expenses Net Operating Income 92000 172000 207000 387000 230000 430000 57500 107500 586500 1096500 517500 967500 330000 240000 570000 -52500 330000 240000 570000 397500

2) Diffrence between the Abosrption net income and variable costing net income Reconcile the variable costing and absorption costing Net income 2018 2019 Variable Costing Income(Loss) -52500 397500 Add: Fixed Manufacturing Overheads cost Deferred in ending inventory 100000 LESS: Fixed Manufacturing Overheads cost released from inventory -100000 Absorption Costing Income(loss) 47500 297500 Working Note - 1 Units Produced Units Sold Difference in units =( Produces -Sold) Difference in manufacturing overheads = ( Difference in units * fixed manufacturing OH per unit) 2018 330001 23000 10000 2019 33000 43000 -10000 1,00,000 -100000