During Denton Company's first two years of operation, the company reported absorption costing net operating income as follows: Year1 Year 2

Sales (@$63 per unit) $1,197,000 $1,827,000

Cost goods sold (@ $39 per unit) $741,000 $1,131,000

Gross margin $456,000 $696,000

Selling and Admin expenses $308,000 $338,000

Net Operating Income $148,000 $358,000

*$3 per unit variable; $251,000 fixed each year

The companys $39 unit product cost is computed as follows:

Direct material $7

Direct Labor $11

Variable Mfg OH $2

Fixed mfg OH ($456,000/24,000 units) $19

Absorption costing unit product cost $39

Production and cost data for the two years are given below:

Year 1 Year 2

Units produced 24,000 24,000

Units sold 19,000 29,000

1. Required:

Prepare a variable costing contribution format income statement for each year.

Variable Costing Income Statement Year 1 Year 2

Variable Expenses:

choose (in order):

Fixed Selling and administrative expenses $

Variable selling and administrative expenses

Variable cost of goods sold

Sales

Fixed manufacturing overhead

Net operating income (loss)

Contribution Margin

Total variable Expenses:

choose:

Contribution Margin $

Variable cost of goods sold

Fixed manufacturing overhead

Net operating income (loss)

Fixed Selling and administrative expenses

Variable selling and administrative expenses

Sales

Fixed expenses:

choose:

Contribution Margin $

Variable cost of goods sold

Fixed manufacturing overhead

Net operating income (loss)

Fixed Selling and administrative expenses

Variable selling and administrative expenses

Sales

Total fixed expenses:

choose:

Contribution Margin $

Variable cost of goods sold

Fixed manufacturing overhead

Net operating income (loss)

Fixed Selling and administrative expenses

Variable selling and administrative expenses

Sales

2.

Reconcile the absorption costing and variable costing net operating income figures for each year.

Year 1 Year 2

Variable costing net operating income (loss) $

Add (deduct) fixed mfg overhead deferred in (released from) inventory under absorption costing

Absorb costing net operating income (loss) $