Income Statements and Firm Performance: Variable and Absorption Costing

Jellison Company had the following operating data for its first two years of operations:

Variable costs per unit:
Direct materials		4.00
Direct labor		$2.80
Variable overhead		1.50
Fixed costs per year:
Overhead		180,000
Selling and administrative		70,600

Jellison produced 90,000 units in the first year and sold 80,000. In the second year, it produced 80,000 units and sold 90,000 units. The selling price per unit each year was $12. Jellison uses an actual costing system for product costing.

Required:

1. Prepare income statements for both years using absorption costing. If an amount is zero, enter "0".

Jellison Company
Absorption-Costing Income Statement
For Years 1 and 2
	Year 1	Year 2
Sales	$fill in the blank a78332ffd05f079_2	$fill in the blank a78332ffd05f079_3
Less: Cost of goods sold	fill in the blank a78332ffd05f079_5	fill in the blank a78332ffd05f079_6
Gross profit	$fill in the blank a78332ffd05f079_7	$fill in the blank a78332ffd05f079_8
	fill in the blank a78332ffd05f079_10	fill in the blank a78332ffd05f079_11
Operating income	$fill in the blank a78332ffd05f079_12	$fill in the blank a78332ffd05f079_13
Cost of goods sold:
	$fill in the blank a78332ffd05f079_15	$fill in the blank a78332ffd05f079_16
	fill in the blank a78332ffd05f079_18	fill in the blank a78332ffd05f079_19
	$fill in the blank a78332ffd05f079_21	$fill in the blank a78332ffd05f079_22
	fill in the blank a78332ffd05f079_24	fill in the blank a78332ffd05f079_25
Cost of goods sold	$fill in the blank a78332ffd05f079_26	$fill in the blank a78332ffd05f079_27

Has firm performance, as measured by income, improved or declined from Year 1 to Year 2?

2. Prepare income statements for both years using variable costing. If an amount is zero, enter "0".

Jellison Company
Variable-Costing Income Statement
For Years 1 and 2
	Year 1	Year 2
	$fill in the blank b5cb2cfbc071074_2	$fill in the blank b5cb2cfbc071074_3
	fill in the blank b5cb2cfbc071074_5	fill in the blank b5cb2cfbc071074_6
Contribution margin	$fill in the blank b5cb2cfbc071074_7	$fill in the blank b5cb2cfbc071074_8
Less:
	fill in the blank b5cb2cfbc071074_10	fill in the blank b5cb2cfbc071074_11
	fill in the blank b5cb2cfbc071074_13	fill in the blank b5cb2cfbc071074_14
Operating income	$fill in the blank b5cb2cfbc071074_15	$fill in the blank b5cb2cfbc071074_16
Variable cost of goods sold:
	$fill in the blank b5cb2cfbc071074_18	$fill in the blank b5cb2cfbc071074_19
	fill in the blank b5cb2cfbc071074_21	fill in the blank b5cb2cfbc071074_22
	$fill in the blank b5cb2cfbc071074_24	$fill in the blank b5cb2cfbc071074_25
	fill in the blank b5cb2cfbc071074_27	fill in the blank b5cb2cfbc071074_28
Cost of goods sold	$fill in the blank b5cb2cfbc071074_29	$fill in the blank b5cb2cfbc071074_30

Has firm performance, as measured by income, improved or declined from Year 1 to Year 2?

3. Which method do you think most accurately measures firm performance?