During Denton Company’s first two years of operations, the company reported absorption costing net operating income as follows:
Year 1 Year 2
Sales (@ $64 per unit) $ 1,216,000 $ 1,856,000
Cost of goods sold (@ $32 per unit) 608,000 928,000
Gross margin 608,000 928,000
Selling and administrative expenses* 311,000 341,000
Net operating income $ 297,000 $ 587,000
* $3 per unit variable; $254,000 fixed each year.
The company’s $32 unit product cost is computed as follows:
Direct materials $ 8
Direct labor 8
Variable manufacturing overhead 4
Fixed manufacturing overhead ($288,000 ÷ 24,000 units) 12
Absorption costing unit product cost $ 32
Production and cost data for the two years are given below:
Year 1 Year 2
Units produced 24,000 24,000
Units sold 19,000 29,000
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
$ $
Variable expenses:
Total variable expenses
Fixed expenses:
Total fixed expenses
$ $
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) $ $
1 answer
1 answer