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During Gates Company's first two years of operations, the company reported absorption costing net operating income as follows:
Year 1
Year 2
Sales (@ $62 per unit)
$
992,000
1,612,000
Cost of goods sold (@ $38 per unit)
608,000
988,000
Gross margin
384,000
624,000
Selling and administrative expenses*
296,000
326,000
Net operating income
88,000
298,000
* $3 per unit variable; $248,000 fixed each year.
The company's $38 unit product cost is computed as follows:
Direct materials
7
Direct labor
12
Variable manufacturing overhead
2
Fixed manufacturing overhead ($357,000 ÷ 21,000 units)
17
Absorption costing unit product cost
38
Production and cost data for the two years are given below:
Units produced
21,000
Units sold
16,000
26,000
Required:
1.
Prepare a variable costing contribution format income statement for each year.
2.
Reconcile the absorption costing and variable costing net operating income figures for each year. (Loss and deduction amounts should be indicated with a minus sign.)
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