During Denton Companys first two years of operations, the company reported absorption costing net operating income as follows:

	Year 1		Year 2
Sales (@ $61 per unit)	$	1,098,000	$	1,708,000
Cost of goods sold (@ $34 per unit)		612,000		952,000
Gross margin		486,000		756,000
Selling and administrative expenses*		301,000		331,000
Net operating income	$	185,000	$	425,000

* $3 per unit variable; $247,000 fixed each year.

The companys $34 unit product cost is computed as follows:

Direct materials	$	9
Direct labor		10
Variable manufacturing overhead		1
Fixed manufacturing overhead ($322,000 23,000 units)		14
Absorption costing unit product cost	$	34

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

	Year 1	Year 2
Units produced	23,000	23,000
Units sold	18,000	28,000

Required:

1.	Prepare a variable costing contribution format income statement for each year. (Input all amounts as positive values except losses which should be indicated by a minus sign.)

Variable Costing Income Statement
	Year 1	Year 2
(Click to select)Fixed manufacturing overheadFixed selling and administrative expensesContribution marginVariable cost of goods soldSalesVariable selling and administrative expensesNet operating income (loss)	$	$
Variable expenses:
(Click to select)SalesVariable cost of goods soldContribution marginFixed selling and administrative expensesFixed manufacturing overheadNet operating income (loss)Direct materials
(Click to select)SalesFixed manufacturing overheadFixed selling and administrative expensesContribution marginNet operating income (loss)Variable selling and administrative expensesDirect materials
Total variable expenses
(Click to select)Contribution marginGross margin
Fixed expenses:
(Click to select)Net operating income (loss)Direct materialsVariable selling and administrative expensesFixed manufacturing overheadVariable cost of goods soldSalesContribution margin
(Click to select)Fixed selling and administrative expensesDirect materialsVariable selling and administrative expensesVariable cost of goods soldNet operating income (loss)SalesContribution margin
Total fixed expenses
Net operating income (loss)	$	$

2.	Reconcile the absorption costing and variable costing net operating income figures for each year. (Loss amounts and amounts to be deducted should be indicated with a minus sign.)

Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
	Year 1	Year 2
Variable costing net operating income (loss)	$	$
Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing
Absorption costing net operating income (loss)	$	$