The tollowing information applies to the questions displayed below Dowell Compan

Question

The tollowing information applies to the questions displayed below Dowell Company produces a single product. Its income statements under absorption costing for its firs years of operation follow Sales ($46 per unit) Cost of goods sold $ 920,000 $1,840,000 620,0001,240,000 per unit) Gross margin Selling and administrative expenses 300,000600,000 290,000340,000 Net income $ 10,000 $ 260,000 a. Sales and production data for these first two years follow Units produced Units sold 2014- 2015 30,000 30,000 20.000 40,000 b. Variable cost per unit and total fixed costs are unchanged during 2014 and 2015. The company's $31 unit product cost consists of the following. $ 5 Direct materials Direct labor Variable overhead Fixed overhead ($300.000/30,000 units) 9 7 10 Total product cost per unit $ 31 c. Selling and administrative expenses consist of the following 2014 2015 Variable selling and administrative expenses2.50 per unit) Fixed selling and administrative expenses S 50,000 $ 100 000 240.000240.000 Total selling and administrative expenses s 290,000 S 340.000

Explanation / Answer

2) Reconciliation of variable costing income to Absorption costing income 2014 2015 Variable costing income (loss) -90,000 360,000 less:Fixed overhead in beginning inventory 100,000 Add:Fixed overhead in ending inventory 100,000 Absorption costing income (loss) 10,000 260,000 Variable costing income statement contribution ( selling price - variable costing) year 2014      (46-5-9-7-2.5)*20000 450000 year 2015      (40000*22.5) 900000 less:Fixed expenses fixed overhead -300,000 -300,000 Fixed selling and administrative expense -240,000 -240,000 variable costing income(loss) -90000 360000

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