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During Durton Company's first two years of operations, the company reported variable costing operating income as shown below. Production and cost data for the two
During Durton Company's first two years of operations, the company reported variable costing operating income as shown below. Production and cost data for the two years are given: Units produced Units sold Year 1 Year 2 25,000 25,000 20,000 30,000 Sales (at $50 per unit) Variable expenses: Variable cost of goods sold (at $20 per unit) Variable selling and administrative costs (at $3 per unit) Total variable expenses Contribution margin, Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative Total fixed expenses Operating income (loss) The company's $20 unit product cost is computed as follows: Direct materials Direct labour $ 8 10 Variable manufacturing overhead $20 Unit product cost Year 1 $1,000,000 Year 2 $1,500,000 400,000 600,000 60,000 90,000 460,000 690,000 540,000 810,000 350,000 350,000 250,000 250,000 600,000 600,000 $ (60,000) $ 210,000 1. Prepare an absorption costing income statement for each year. Absorption Costing Income Statements Cost of goods sold: Cost of goods sold Year 1 Year 2 2. Reconcile the absorption costing and variable costing operating income figures for each year. (Loss amounts should be indicated by a minus sign.) Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Year 1 Year 2- Variable costing operating income (loss) Add. Fixed manufacturing overhead cost deferred in inventory under absorption costing Deduct Fixed manufacturing overhead cost released from inventory under absorption costing Absorption costing operating income (loss)
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