Reference no: EM131050250
Dowell Company produces a single product.Its income statements under absorption costing for its first two years of operation follow.
...................................................................2014.................................. 2015
Sales($46per unit)......... ........................... $920,000........................... $1,840,000
Cost of goods sold($31 per unit)................. $620,000........................... $1,240,000
Gross margin.............. ............................300,000................................ 600,000
Selling and administrative expenses........... 290,000................................. 340,000
Net income.............................................. $ 10,000................................. $260,000
Additional Information
a. Sales and production data for these first two years follow.
.....................................................2014............................2015
Units produced............................. 30,000........................ 30,000
Units sold.................................... 20,000 ........................40,000
b. Variable cost per unit and total fixed costs are unchanged during 2014 and 2015. The company's $31 per unit product cost consists of the following.
Direct materials.................................................. $5
Direct labor........................................................ 9
Variable overhead .............................................. 7
Fixed overhead ($300,000/30,000units)............... 10
Total product cost per unit.. ............................. $31
c. .............................................................................2014.............................. 2015
Variable selling and administration expenses........... $50,000....................... $100,000
fixed selling and administration expenses............... 240,000....................... 240,000
Total selling and administration expenses.............. 290,000 .......................340,000
Required
1. Prepare income statements for the company for each of its first two years under variable costing.
2. Explain any difference between the absorption costing income and the variable costing income foe this two year
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