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

	Year 1		Year 2
Sales (@ $62 per unit)	$	1,178,000	$	1,798,000
Cost of goods sold (@ $35 per unit)		665,000		1,015,000
Gross margin		513,000		783,000
Selling and administrative expenses*		308,000		338,000
Net operating income	$	205,000	$	445,000

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

The companys $35 unit product cost is computed as follows:

Direct materials	$	8
Direct labor		9
Variable manufacturing overhead		4
Fixed manufacturing overhead ($336,000 24,000 units)		14
Absorption costing unit product cost	$	35

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

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 overheadContribution marginNet operating income (loss)Variable selling and administrative expensesVariable cost of goods soldSalesFixed selling and administrative expenses	$	$
Variable expenses:
(Click to select)SalesNet operating income (loss)Fixed selling and administrative expensesVariable cost of goods soldDirect materialsContribution marginFixed manufacturing overhead
(Click to select)Net operating income (loss)Fixed selling and administrative expensesSalesDirect materialsVariable selling and administrative expensesContribution marginFixed manufacturing overhead
Total variable expenses
(Click to select)Contribution marginGross margin
Fixed expenses:
(Click to select)SalesVariable selling and administrative expensesVariable cost of goods soldFixed manufacturing overheadContribution marginDirect materialsNet operating income (loss)
(Click to select)Direct materialsFixed selling and administrative expensesSalesNet operating income (loss)Variable selling and administrative expensesVariable cost of goods soldContribution 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)	$	$