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During Gates Companys first two years of operations, the company reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $62
During Gates Companys first two years of operations, the company reported absorption costing net operating income as follows:
Year 1 | Year 2 | |||
Sales (@ $62 per unit) | $ | 992,000 | $ | 1,612,000 |
Cost of goods sold (@ $38 per unit) | 608,000 | 988,000 | ||
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Gross margin | 384,000 | 624,000 | ||
Selling and administrative expenses* | 296,000 | 326,000 | ||
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Net operating income | $ | 88,000 | $ | 298,000 |
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* $3 per unit variable; $248,000 fixed each year. |
The companys $38 unit product cost is computed as follows: |
Direct materials | $ | 7 |
Direct labor | 12 | |
Variable manufacturing overhead | 2 | |
Fixed manufacturing overhead ($357,000 21,000 units) | 17 | |
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Absorption costing unit product cost | $ | 38 |
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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 |
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Required: |
1. | Prepare a variable costing contribution format income statement for each year.
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