Home / Questions / During Denton Company’s first two years of operations the company reported absorption cost...
During Denton Company’s first two years of operations, the company reported absorption costing net operating income as follows:
|
|
Year 1 |
|
Year 2 |
|
Sales (@ $50 per unit) . . . . . . . . . . . . . . . . . . . . |
$1,000,000 |
|
$1,500,000 |
|
Cost of goods sold (@ $34 per unit) . . . . . . . . . . |
680,000 |
|
1,020,000 |
|
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . |
320,000 |
|
480,000 |
|
Selling and administrative expenses* . . . . . . . . . |
310,000 |
|
340,000 |
|
Net operating income . . . . . . . . . . . . . . . . . . . . . |
$ 10,000 |
|
$ 140,000 |
|
|
|
|
|
|
*$3 per unit variable; $250,000 fixed each year. |
|
|
|
The company’s $34 unit product cost is computed as follows:
Production and cost data for the two years are given below:
|
|
Year 1 |
Year 2 |
|
Units produced . . . . . . . . . |
25,000 |
25,000 |
|
Units sold . . . . . . . . . . . . . |
20,000 |
30,000 |
Required:
1. Prepare a variable costing contribution format income statement for each year.
2. Reconcile the absorption costing and variable costing net operating income figures for each year.
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