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) $ 976,000 $ 1,586,000 Cost of goods sold (@ $40 per unit) 640,000 1,040,000 Gross margin 336,000 546,000 Selling and administrative expenses* 301,000 331,000 Net operating income $ 35,000 $ 215,000 * $3 per unit variable; $253,000 fixed each year. The companys $40 unit product cost is computed as follows: Direct materials $ 9 Direct labor 12 Variable manufacturing overhead 2 Fixed manufacturing overhead ($357,000 21,000 units) 17 Absorption costing unit product cost $ 40 Production and cost data for the two years are given below: Year 1 Year 2 Units produced 21,000 21,000 Units sold 16,000 26,000 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 $ $ Variable expenses: Total variable expenses Fixed expenses: 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) $ $

During Denton Company's first two years of operations, the company reported absorption costing net operating income as follows Year 1 ear Sales (@ $61 per unit) Cost of goods sold ( $40 per unit) $ 976,000 $1,586,000 640,000 1,040,000 Gross margin Selling and administrative expenses 336,000 301,000 546,000 331,000 Net operating income $ 35,000 $ 215,000 $3 per unit variable; $253,000 fixed each year The company's $40 unit product cost is computed as follows $ 9 12 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($357,000 21,000 units) 17 Absorption costing unit product cost $40 Production and cost data for the two years are given below: Units produced Units sold Year 1Year 2 21,000 16,000 26,000 21,000