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(Solution document) Dowell Co. produces a single product. Its income statement under absorption costing for its first two years of operation follow:


Dowell Co. produces a single product. Its income statement under absorption costing for its first two years of operation follow:

2012 2013

Sales ($46 per unit) $920,000 $1,840,000


Cost of goods sold 620,000 1,240,000


Gross margin 300,000 600,000


Selling and Administrative expenses 290,000 340,000


Net Income $ 10,000 $260,000


Additional information

a) Sales and production data for these first two years follow.

2012 2013

Units produced 30,000 30,000


Units sold 20,000 40,000


b) Variable cost per unit and total fixed costs are unchanged during 2012 and 2013. The company's $31 per unit product cost consists of the following:

Direct material $5

Direct labor 9

Variable overhead 7

Fixed overhead 10

Total product cost per unit $31


c) Selling and administrative expenses consist of the following:

2012 2013

Variable Selling & Admin ($2.50 per unit) $50,000 $100,000


Fixed selling and Admin 240,000 240,000


Total selling and admin $290,000 $340,000


1) I need to create an income statement for the company for each of its first two years under variable costing. Can you help me?


2) I need to explain the difference between the absorption costing income and the variable costing income for these two years. Can you help me?

 







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