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1. During Denton Company's first two years of operations, the company reported absorption costing net operating income as follows: Sales (@AED 63 per unit)
1. During Denton Company's first two years of operations, the company reported absorption costing net operating income as follows: Sales (@AED 63 per unit) 1,260,000 1,890,000 Cost of Goods Sold (@AED 35 per unit) 700,000 1,050,000 Gross Margin 560,000 840,000 Selling and Administrative Expenses 312,000 342,000 (AED 3 per unit Variable, AED 252,000 fixed each year.) Net Operating Income 248,000 498,000 The company's AED 35 unit product cost is computed as follows: Direct Materials 7 AED Direct Labor 8 AED Variable Manufacturing Overhead 3 AED Fixed Manufacturing Overhead (AED 425,000+25,000 units) Absorption Costing Unit Product Cost 17 AED 35 AED Production and cost data for the two years are given below: Year 1 Year 2 Units Produced Units Sold 25,000 25,000 20,000 30,000 Requirements: a) Prepare a variable costing contribution format income statement for each year. b) Prepare an absorption costing contribution format income statement for each year. c) Reconcile the absorption costing and variable costing net operating income figures for each year.
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