Reference no: EM132791704

Problem - Dowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow.

	2016	2017
Sales ($44 per unit)	$1,056,000	$1,936,000
Cost of goods sold ($29 per unit)	696,000	1,276,000
Gross margin	360,000	660,000
Selling and administrative expenses	288,000	328,000
Net income	$72,000	$332,000

Additional information -

a. Sales and production data for these first two years follow.

	2016	2017
Units produced	34,000	34,000
Units sold	24,000	44,000

b. Variable cost per unit and total fixed costs are unchanged during 2016 and 2017. The company's $29 per unit product cost consists of the following.

Direct materials $6

Direct labor 9

Variable overhead 4

Fixed overhead ($340,000/34,000 units) 10

Total product cost per unit $29

c. Selling and administrative expenses consist of the following.

	2016	2017
Variable selling and administrative expenses ($2 per unit)	$48,000	$88,000
Fixed selling and administrative expenses	240,000	240,000
Total selling and administrative expenses	$288,000	$328,000

Required -

1. Complete income statements for the company for each of its first two years under variable costing.

2. What are the differences between the absorption costing income and the variable costing income for these two years?