Dowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow.

2016

2017

Sales ($48 per unit)

$

1,056,000

$

2,016,000

Cost of goods sold ($33 per unit)

726,000

1,386,000

Gross margin

330,000

630,000

Selling and administrative expenses

283,500

318,500

Net income

$

46,500

$

311,500

Additional Information

a.Sales and production data for these first two years follow.

2016

2017

Units produced

32,000

32,000

Units sold

22,000

42,000

b.Variable cost per unit and total fixed costs are unchanged during 2016 and 2017. The company's $33 per unit product cost consists of the following.

Direct materials

$

5

Direct labor

8

Variable overhead

10

Fixed overhead ($320,000/32,000 units)

10

Total product cost per unit

$

33

c.Selling and administrative expenses consist of the following.

2016

2017

Variable selling and administrative expenses ($1.75 per unit)

$

38,500

$

73,500

Fixed selling and administrative expenses

245,000

245,000

Total selling and administrative expenses

$

283,500

$

318,500

2.What are the differences between the absorption costing income and the variable costing income for these two years? (Loss amounts should be entered with a minus sign.)

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