Question
Required information [The following information applies to the questions displayed below.] Dowell Company produces a single product. Its income statements under absorption costing for its
Required information
[The following information applies to the questions displayed below.] Dowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow.
2016 | 2017 | |||||
Sales ($48 per unit) | $ | 1,152,000 | $ | 2,112,000 | ||
Cost of goods sold ($33 per unit) | 792,000 | 1,452,000 | ||||
Gross margin | 360,000 | 660,000 | ||||
Selling and administrative expenses | 287,000 | 322,000 | ||||
Net income | $ | 73,000 | $ | 338,000 | ||
Additional Information
Sales and production data for these first two years follow.
2016 | 2017 | |||
Units produced | 34,000 | 34,000 | ||
Units sold | 24,000 | 44,000 | ||
Variable cost per unit and total fixed costs are unchanged during 2016 and 2017. The company's $33 per unit product cost consists of the following.
Direct materials | $ | 4 | |
Direct labor | 9 | ||
Variable overhead | 10 | ||
Fixed overhead ($340,000/34,000 units) | 10 | ||
Total product cost per unit | $ | 33 | |
Selling and administrative expenses consist of the following.
2016 | 2017 | |||||
Variable selling and administrative expenses ($1.75 per unit) | $ | 42,000 | $ | 77,000 | ||
Fixed selling and administrative expenses | 245,000 | 245,000 | ||||
Total selling and administrative expenses | $ | 287,000 | $ | 322,000 | ||
2. What are the differences between the absorption costing income and the variable costing income for these two years? (Loss amounts should be entered with a minus sign.)
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