Dowell Company produces a single product. Its income statementsunder absorption costing for its first two years of operationfollow.
| | 2016 | | | 2017 | |
| Sales ($46 per unit) | $ | 1,012,000 | | $ | 1,932,000 | |
| Cost of goods sold ($31 per unit) | | 682,000 | | | 1,302,000 | |
| Gross margin | | 330,000 | | | 630,000 | |
| Selling and administrative expenses | | 289,000 | | | 329,000 | |
| Net income | $ | 41,000 | | $ | 301,000 | |
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Additional Information
- Sales and production data for these first two yearsfollow.
| 2016 | | 2017 | |
| Units produced | 32,000 | | 32,000 | |
| Units sold | 22,000 | | 42,000 | |
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- Variable cost per unit and total fixed costs are unchangedduring 2016 and 2017. The company's $31 per unit product costconsists of the following.
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| Direct materials | $ | 5 | |
| Direct labor | | 9 | |
| Variable overhead | | 7 | |
| Fixed overhead ($320,000/32,000 units) | | 10 | |
| Total product cost per unit | $ | 31 | |
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- Selling and administrative expenses consist of thefollowing.
| | 2016 | | | 2017 | |
| Variable selling and administrative expenses ($2 per unit) | $ | 44,000 | | $ | 84,000 | |
| Fixed selling and administrative expenses | | 245,000 | | | 245,000 | |
| Total selling and administrative expenses | $ | 289,000 | | $ | 329,000 | |
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1. Complete income statements for the companyfor each of its first two years under variable costing.(Loss amounts should be entered with a minussign.)
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| | DOWELL Company | | Variable Costing Income Statements | | 2016 | 2017 | | Sales | | | | Less: Variable costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net income (loss) | |
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2. What are the differences between theabsorption costing income and the variable costing income for thesetwo years? (Loss amounts should be entered with a minussign.)
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| | DOWELL COMPANY | | Reconciliation of Variable CostingIncome to Absorption Costing Income | | 2016 | 2017 | | Variable costing income (loss) | | | | | | | | | | Absorption costing income(loss) | |
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