Question

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. 2018 2019 Sales ($46 per unit) Cost of goods sold ($31 per unit) Gross margin Selling and administrative expenses $920,000 620,000 300,000 290,000 $1,840,000 1,240,000 600,000 340,000 Net income 10,000 260,000 Additional Information a. Sales and production data for these first two years follow. 2019 30,000 40,000 2018 Units produced Units sold 30,000 20,000 b. Variable cost per unit and total fixed costs are unchanged during 2018 and 2019. The company's $31 per unit product cost consists of the following. Direct materials b. Variable cost per unit and total fixed costs are unchanged during 2018 and 2019. The company's $31 per unit product cost consists of the following. Direct materials Direct labor Variable overhead Fixed overhead ($300,000/30,000 units) S 5 10 Total product cost per unit $31 . Selling and administrative expenses consist of the following 2018 2019 Variable selling and aeministrative expenses ($2.50 per unit) Fixed selling and administrative expenses 50,000 $100,000 240,000 240,000 Total selling and administrative expenses $290,000 $340,000 neck my Work Required:Prepare income statements for the company for each of its first two years under variable costing. (Loss amounts should be entered with a minus sign.) DOWELL Company Variable Costing Income Statements 2018 2019 Sales 920,000 1,840,000 Less: Variable costs Variable overhead Variable selling and administrative expenses 50,000 100,000 Direct labor Direct materials 50,000 100,000 Total variable costs 900,000 Contribution margin 450,000 Less: Fixed expenses 300,000 240,000 300,000 Fixed overhead 240,000 Fixed selling and administrative costs 540,000 540,000 Total foxed expenses (90,000) 360,000 Net income (loss)

Answer 1

DOWELL Company Variable Costing Income Statements for 2018 and 2019:

2018 2019

Sales 920,000 1,840,000

Less: Variable costs

Total variable costs 470,000 940,000

Contribution margin 450,000 900,000

Less: Fixed expenses:

Fixed selling costs 300,000 300,000

Fixed administrative costs 240,000 240,000

Total fixed expenses 540,000 540,000

Net income (loss) (90,000) 360,000

Step-by-step explanation:

a) Dowell Company Income Statements under absorption costing:

2018 2019

Sales $920,000 $1,840,000

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

Gross margin 300,000 600,000

Selling & Admin. Expenses 290,000 340,000

Net Income 10,000 260,000

b) Production & Sales Data:

Units Sold Units Produced

2018 20,000 30,000

2019 30,000 40,000

c) Variable costing and absorption costing produce different net income results. Variable costing takes into consideration the variable costs of production to produce a contribution while absorption costing considers the cost of goods sold to produce the gross profit. Variable costing is more of a management accounting technique for decision making while absorption costing follows the financial accounting procedures.