Variable Costing Income Statement: Reconciliation
During Denton Company’s first two years of operations the company reported absorption costing net operating incomes as follows:
| Year 1 | Year 2 |
Sales (@$50 per unit) | $1,000,000 | $1,500,00 |
Cost of goods sold (@ per unit) | 680.000 | 1.020.000 |
Gross margin | 320.000 | 480.000 |
Selling and administrative expenses | 310.000 | 340.000 |
Net operating income | $ 10,000 | $ 140,000 |
*$3 per unit variable;$250.000 fixed each year | ||
The company’s $34 unit product cost is computed as follows:
Direct materials | $8 |
Direct labor | 10 |
Variable manufacturing overhead | 2 |
Fixed manufacturing overhead ($350,000 ÷ 25,000 units) | 12 |
Absorption costing unit product cost | $34 |
Production and cost data for the two years are given below:
| Year 1 | Year 2 |
Units produced | 25,000 | 25,000 |
Units sold | 20,000 | 30,000 |
Required:
1. Prepare a variable costing contribution format income statement for each year.
2. Reconcile the absorption costing and variable costing net operating income figure, for each year.
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