Dowell Company produces a single product. Its income statements under absorption
ID: 2405448 • Letter: D
Question
Dowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow. 2016 2017 Sales ($48 per unit) $ 1,104,000 $ 2,064,000 Cost of goods sold ($33 per unit) 759,000 1,419,000 Gross margin 345,000 645,000 Selling and administrative expenses 285,250 320,250 Net income $ 59,750 $ 324,750 Additional Information Sales and production data for these first two years follow. 2016 2017 Units produced 33,000 33,000 Units sold 23,000 43,000 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. Direct materials $ 5 Direct labor 8 Variable overhead 10 Fixed overhead ($330,000/33,000 units) 10 Total product cost per unit $ 33 Selling and administrative expenses consist of the following. 2016 2017 Variable selling and administrative expenses ($1.75 per unit) $ 40,250 $ 75,250 Fixed selling and administrative expenses 245,000 245,000 Total selling and administrative expenses $ 285,250 $ 320,250 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.) 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.)
Explanation / Answer
DOWELL COMPANY
Variable Costing Income Statement
2016
2017
Sales
$ 1,104,000.00
$ 2,064,000.00
Less: Variable Cost
Direct material
$ 115,000.00
$ 215,000.00
Direct Labor
$ 184,000.00
$ 344,000.00
Variable Overheads
$ 230,000.00
$ 430,000.00
Variable selling and Administrative expenses
$ 40,250.00
$ 75,250.00
Total Variable cost
$ 569,250.00
$ 1,064,250.00
Contribution Margin
$ 534,750.00
$ 999,750.00
Less: Fixed Cost
Fixed manufacturing Overheads
$ 330,000.00
$ 330,000.00
Fixed Selling and Administrative Expenses
$ 245,000.00
$ 245,000.00
Total Fixed cost
$ 575,000.00
$ 575,000.00
Net Income
$ (40,250.00)
$ 424,750.00
DOWELL COMPANY
Reconciliation of Variable costing and Absorption Costing system
2016
2017
variable Costing Income (loss)
$ (40,250.00)
$ 424,750.00
Inventory in Absorption costing (10*10000)
$ 100,000.00
$ (100,000.00)
Absorption Costing Income
$ 59,750.00
$ 324,750.00
$100000 of inventory in 2016 is the closing unsold inventory which increased profit as per absorption costing
$100000 deducted in 2017 represents the cost of opening inventory in absorption but there was no opening inventory as per variable costing so that amount is deducted from variable costing profit to het profit as per absorption system.
DOWELL COMPANY
Variable Costing Income Statement
2016
2017
Sales
$ 1,104,000.00
$ 2,064,000.00
Less: Variable Cost
Direct material
$ 115,000.00
$ 215,000.00
Direct Labor
$ 184,000.00
$ 344,000.00
Variable Overheads
$ 230,000.00
$ 430,000.00
Variable selling and Administrative expenses
$ 40,250.00
$ 75,250.00
Total Variable cost
$ 569,250.00
$ 1,064,250.00
Contribution Margin
$ 534,750.00
$ 999,750.00
Less: Fixed Cost
Fixed manufacturing Overheads
$ 330,000.00
$ 330,000.00
Fixed Selling and Administrative Expenses
$ 245,000.00
$ 245,000.00
Total Fixed cost
$ 575,000.00
$ 575,000.00
Net Income
$ (40,250.00)
$ 424,750.00
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.