During Denton Company’s first two years of operations, the company reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $63 per unit) year 1$ 1,260,000 year 2 $ 1,890,000 Cost of goods sold (@ $35 per unit) year 1. $700,000 year 2.$1,050,000 Gross margin year 1$560,000 year 2 $840,000 Selling and administrative expenses* year 1 $312,000 year 2 $342,000 Net operating income year 1$ 248,000 year 2$ 498,000 $3 per unit variable; $252,000 fixed each year. The company’s $35 unit product cost is computed as follows: Direct materials $ 7 Direct labor $8 Variable manufacturing overhead $3 Fixed manufacturing overhead ($425,000 ÷ 25,000 units) $17 Absorption costing unit product cost $ 35 Production and cost data for the two years are given below: Year 1 Year 2 Units produced $25,000 $25,000 Units sold. $20,000 $30,000 Prepare a variable costing contribution format income statement for each year. Reconcile the absorption costing and variable costing net operating income figures for each year.
During Denton Company’s first two years of operations, the company reported absorption costing net
operating income as follows:
Year 1 Year 2
Sales (@
$63 per unit) year 1$ 1,260,000 year 2 $ 1,890,000
Cost of goods sold (@ $35 per unit) year 1. $700,000 year 2.$1,050,000
Gross
margin year 1$560,000 year 2 $840,000
Selling and
administrative
expenses*
year 1 $312,000 year 2 $342,000
Net
operating
income
year 1$ 248,000 year 2$ 498,000
$3 per unit variable; $252,000 fixed each year.
The company’s $35 unit product cost is computed as follows:
Direct materials $ 7
Direct labor $8
Variable manufacturing
Fixed manufacturing overhead
($425,000 ÷ 25,000 units) $17
Absorption costing unit product
cost $ 35
Production and cost data for the two years are given below:
Year 1 Year 2
Units produced $25,000 $25,000
Units sold. $20,000 $30,000
Prepare a variable costing contribution format income statement for each year.
Reconcile the absorption costing and variable costing net operating income figures for each year.
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