Question
Dowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow. 2016 2017 Sales ($46 per
Dowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow.
2016 | 2017 | |||||
Sales ($46 per unit) | $ | 1,104,000 | $ | 2,024,000 | ||
Cost of goods sold ($31 per unit) | 744,000 | 1,364,000 | ||||
Gross margin | 360,000 | 660,000 | ||||
Selling and administrative expenses | 300,000 | 350,000 | ||||
Net income | $ | 60,000 | $ | 310,000 | ||
Additional Information
Sales and production data for these first two years follow.
2016 | 2017 | |||
Units produced | 34,000 | 34,000 | ||
Units sold | 24,000 | 44,000 | ||
Variable cost per unit and total fixed costs are unchanged during 2016 and 2017. The company's $31 per unit product cost consists of the following.
Direct materials | $ | 6 | |
Direct labor | 9 | ||
Variable overhead | 6 | ||
Fixed overhead ($340,000/34,000 units) | 10 | ||
Total product cost per unit | $ | 31 | |
Selling and administrative expenses consist of the following.
2016 | 2017 | |||||||||||||||||||||||||||||
Variable selling and administrative expenses ($2.5 per unit) | $ | 60,000 | $ | 110,000 | ||||||||||||||||||||||||||
Fixed selling and administrative expenses | 240,000 | 240,000 | ||||||||||||||||||||||||||||
Total selling and administrative expenses | $ | 300,000 | $ | 350,000 | ||||||||||||||||||||||||||
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.)
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started