Prepare income statements for each of these two years

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

Income Statements (Absorption Costing)

Year 1

Year 2

Sales ($46 per unit)

$920,000

$1,840,000

Cost of goods sold ($31 per unit)

620,000

1,240,000

Gross profit

300,000

600,000

Selling and administrative expenses

170,000

220,000

Income

$130,000

$380,000

Additional Information

Sales and production data for these first two years follow.

Units

Year 1

Year 2

Units produced

30,000

30,000

Units sold

20,000

40,000

Variable costs per unit and fixed costs per year are unchanged during these years. The company's $31 per unit product cost using absorption costing consists of the following.

Direct materials

$5

Direct labor

9

Variable overhead

7

Fixed overhead ($300,000/30,000 units)

10

Total product cost per unit

$31

Selling and administrative expenses consist of the following.

Selling and Administrative Expenses

Year 1

Year 2

Variable selling and administrative ($2.50 per unit sold)

$50,000

$100,000

Fixed selling and administrative

120,000

120,000

Total

$170,000

$220,000

Required - Prepare income statements for each of these two years under variable costing.

Reference no: EM133140442

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