A variable costing contribution format income statement

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Reference no: EM13914922

 

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:

 

Year 1

Year 2

 

  Units produced

21,000

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.)

                       

Reference no: EM13914922

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