Reference no: EM132988919

Problem - Ewing Company planned to be in operation for three years. During the first year, it had no sales but incurred $120,000 in variable manufacturing expenses and $40,000 in fixed manufacturing expenses. In the next year, it sold half of the finished goods inventory from the previous year for $100,000 but it had no manufacturing costs. In the third year, it sold the remainder of the inventory for $120,000, had non-manufacturing expenses and went out of business. Marketing and administrative expenses were fixed and totalled $20,000 each year.

Required -

a. Prepare an income statement for each year using absorption costing in the gross margin format.

b. Prepare an income statement for each year using variable costing contribution margin format.