Question

Dowell company produces a single product. its income under variable costing for its first two years of operation follow. variable costing income year 1 year 2 income $ 36,000 $ 540,000 additional information sales and production data for these first two years follow.

units year 1 year 2
units produced 36,600 36,600
units sold 26,000 47,200
the company’s $34 per unit product cost (for both years)
using absorption costing consists of the following. direct materials $ 6 direct labor 10 variable overhead 8 fixed overhead ($360,000/36,000 units) 10 total product cost per unit $ 34 required:
prepare a statement to convert variable costing income to absorption costing income for both years.

Answer 1

To convert variable costing income to absorption costing income, we need to include the fixed production costs (fixed overhead) in the cost per unit calculation. The absorption costing income in Year 1 is $312,240 and in Year 2 is $969,568.

Step-by-step explanation:

To convert variable costing income to absorption costing income, we need to include the fixed production costs (fixed overhead) in the cost per unit calculation. We can calculate the fixed production costs per unit by dividing the total fixed overhead by the number of units produced.

In Year 1, the fixed production cost per unit is $360,000/36,600 units = $9.84. So, the absorption costing income in Year 1 is $36,000 + ($9.84 x 26,000 units sold) = $312,240.

In Year 2, the fixed production cost per unit remains the same at $9.84. So, the absorption costing income in Year 2 is $540,000 + ($9.84 x 47,200 units sold) = $969,568.