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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

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.

Jun 29 2020 View more View Less

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