Converting an absorption costing income statement to a variable costing income statement (two consecutive years) - WINFREY COMPANY Problem 6-2A: Converting an absorption costing income statement to a variable costing income statement (two consecutive years) L.O. P2, P4, A1 Winfrey Company produces a single product. Its income statement under absorption costing for its first two years of operation follow. 2007 2008 Sales ($44 per unit) $ 880,000 $ 1,760,000 Cost of goods sold ($29 per unit) 580,000 1,160,000 Gross margin 300,000 600,000 Selling and administrative expenses 275,000 310,000 Net income $ 25,000 $ 290,000 Additional Information a. Sales and production data for these first two years follow. 2007 2008 Units produced 30,000 30,000 Units sold 20,000 40,000 b. Variable cost per unit and total fixed costs are unchanged during 2007 and 2008. The company's $29 per unit product cost consists of the following. Direct materials $ 5 Direct labor 8 Variable overhead 6 Fixed overhead ($300,000/30,000 units) 10 Total product cost per unit $ 29 c. Selling and administrative expenses consist of the following. 2007 2008 Variable selling and administrative ($1.75 per unit) $ 35,000 $ 70,000 Fixed selling and administrative 240,000 240,000 Total selling and administrative $ 275,000 $ 310,000 Requirement 1: Prepare income statements for the company for each of its first two years under variable costing. (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.) WINFREY COMPANY Variable Costing Income Statements 2007 2008 $ $ Variable expenses Total variable costs Contribution margin Fixed expenses Total fixed expenses Net Income (Loss) $ $ Requirement 2: What are the difference between the absorption costing income and the variable costing income for these two years. (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.) WINFREY COMPANY Reconciliation of Absorption Costing Income to Variable Costing Income 2007 2008 Absorption costing income $ $ Fixed overhead in ending inventory Fixed overhead in beginning inventory Variable costing income $ $