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 ($50 per unit) $ 1,350,000 $ 2,550,000 Cost of goods sold ($39 per unit) 1,053,000 1,989,000 Gross profit 297,000 561,000 Selling and administrative expenses 247,000 271,000 Income $ 50,000 $ 290,000 Additional Information Sales and production data for these first two years follow. Units Year 1 Year 2 Units produced 39,000 39,000 Units sold 27,000 51,000 Variable costs per unit and fixed costs per year are unchanged during these years. The company's $39 per unit product cost using absorption costing consists of the following. Direct materials $ 16 Direct labor 9 Variable overhead 5 Fixed overhead ($351,000/39,000 units) 9 Total product cost per unit $ 39 Selling and administrative expenses consist of the following. Selling and Administrative Expenses Year 1 Year 2 Variable selling and administrative ($1 per unit sold) $ 27,000 $ 51,000 Fixed selling and administrative 220,000 220,000 Total $ 247,000 $ 271,000 Required: Prepare income statements for each of these two years under variable costing. (Loss amounts should be entered with a minus sign.)

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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 ($50 per unit)	$ 1,350,000	$ 2,550,000
Cost of goods sold ($39 per unit)	1,053,000	1,989,000
Gross profit	297,000	561,000
Selling and administrative expenses	247,000	271,000
Income	$ 50,000	$ 290,000

Additional Information

Sales and production data for these first two years follow.

Units	Year 1	Year 2
Units produced	39,000	39,000
Units sold	27,000	51,000

Variable costs per unit and fixed costs per year are unchanged during these years. The company's $39 per unit product cost using absorption costing consists of the following.

Direct materials	$ 16
Direct labor	9
Variable overhead	5
Fixed overhead ($351,000/39,000 units)	9
Total product cost per unit	$ 39

Selling and administrative expenses consist of the following.

Selling and Administrative Expenses	Year 1	Year 2
Variable selling and administrative ($1 per unit sold)	$ 27,000	$ 51,000
Fixed selling and administrative	220,000	220,000
Total	$ 247,000	$ 271,000

Required:
Prepare income statements for each of these two years under variable costing. (Loss amounts should be entered with a minus sign.)

Income (Loss)
DOWELL Company
Income Statements (Variable Costing)
Year 1
Year 2

Expert Solution

Explanation -

Variable Costing -

Variable costing formula = Sales - Variable Costs - Fixed Cost = Operating Income

It distinct fixed costs and variable costs while computing operating income. Only cost that changes by change in the output of the organization.

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