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

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

FINANCIAL ACCOUNTING
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) Sales ($46 per unit) Year 1 $920,000 620,000 300,000 170,000 $ 130,000 Cost of goods sold ($31 per unit) Gross profit Selling and administrative expenses Income Additional Information a. Sales and production data for these first two years follow. Units Units produced Units sold Direct materials Direct labor Variable overhead Year 1 30,000 20,000 b. 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. Fixed overhead ($300,000/30,000 units) Total product cost per unit Year 2 30,000 40,000 Income (Loss) $5 9 c. Selling and administrative expenses consist of the following. 10 $31 Selling and Administrative Expenses Variable selling and administrative ($2.50 per unit sold) Fixed selling and administrative Total DOWELL Company Income Statements (Variable Costing) Year 2 $ 1,840,000 1,240,000 600,000 220,000 $ 380,000 Required: Prepare income statements for each of these two years under variable costing. (Loss amounts should be entered with a minus sign.) Year 1 Year 2 Year 1 $ 50,000 120,000 $ 170,000 Year 2 $ 100,000 120,000 $ 220,000
Transcribed Image Text:Dowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow. Income Statements (Absorption Costing) Sales ($46 per unit) Year 1 $920,000 620,000 300,000 170,000 $ 130,000 Cost of goods sold ($31 per unit) Gross profit Selling and administrative expenses Income Additional Information a. Sales and production data for these first two years follow. Units Units produced Units sold Direct materials Direct labor Variable overhead Year 1 30,000 20,000 b. 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. Fixed overhead ($300,000/30,000 units) Total product cost per unit Year 2 30,000 40,000 Income (Loss) $5 9 c. Selling and administrative expenses consist of the following. 10 $31 Selling and Administrative Expenses Variable selling and administrative ($2.50 per unit sold) Fixed selling and administrative Total DOWELL Company Income Statements (Variable Costing) Year 2 $ 1,840,000 1,240,000 600,000 220,000 $ 380,000 Required: Prepare income statements for each of these two years under variable costing. (Loss amounts should be entered with a minus sign.) Year 1 Year 2 Year 1 $ 50,000 120,000 $ 170,000 Year 2 $ 100,000 120,000 $ 220,000
Expert Solution
Step 1: Concept

Net Operating Income (NOI) under absorption costing is a measure of a company's profitability that considers all costs of production, including both variable and fixed manufacturing overhead costs Operating Income can fluctuate between absorption costing and variable costing methods, particularly when production levels change.


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