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

	Year 1		Year 2
Sales (@ $60 per unit)	$	1,020,000	$	1,620,000
Cost of goods sold (@ $35 per unit)		595,000		945,000
Gross margin		425,000		675,000
Selling and administrative expenses*		304,000		334,000
Net operating income	$	\121,000\	$	341,000

* $3 per unit variable; $253,000 fixed each year.

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

Direct materials	$	8
Direct labor		11
Variable manufacturing overhead		2
Fixed manufacturing overhead ($308,000 22,000 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	22,000	22,000
Units sold	17,000	27,000

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. Omit the "$" sign in your response.)

Variable Costing Income Statement
	Year 1	Year 2
(Click to select) Variable selling and administrative expenses Fixed manufacturing overhead Net operating income (loss) Variable cost of goods sold Contribution margin Fixed selling and administrative expenses Sales	$	$
Variable expenses:
(Click to select) Net operating income (loss) Sales Fixed selling and administrative expenses Contribution margin Direct materials Fixed manufacturing overhead Variable cost of goods sold
(Click to select) Variable selling and administrative expenses Contribution margin Direct materials Net operating income (loss) Fixed selling and administrative expenses Sales Fixed manufacturing overhead
Total variable expenses
(Click to select) Contribution margin Variable selling and administrative expenses Fixed selling and administrative expenses Variable cost of goods sold Sales Fixed manufacturing overhead Net operating income (loss)
Fixed expenses:
(Click to select) Fixed manufacturing overhead Variable cost of goods sold Contribution margin Sales Variable selling and administrative expenses Net operating income (loss) Direct materials
(Click to select) Sales Fixed selling and administrative expenses Variable selling and administrative expenses Net operating income (loss) Contribution margin Direct materials Variable cost of goods sold
Total fixed expenses
(Click to select) Variable selling and administrative expenses Fixed selling and administrative expenses Contribution margin Net operating income (loss) Fixed manufacturing overhead Variable cost of goods sold Sales	$	$

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. Omit the "$" sign in your response.)

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)	$	$

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