During Denton Company\'s first two years of operation, the company reported abso
ID: 2373965 • Letter: D
Question
During Denton Company's first two years of operation, the company reported absorption costing net operating income as follows: Year1 Year 2
Sales (@$63 per unit) $1,197,000 $1,827,000
Cost goods sold (@ $39 per unit) $741,000 $1,131,000
Gross margin $456,000 $696,000
Selling and Admin expenses $308,000 $338,000
Net Operating Income $148,000 $358,000
*$3 per unit variable; $251,000 fixed each year
The companys $39 unit product cost is computed as follows:
Direct material $7
Direct Labor $11
Variable Mfg OH $2
Fixed mfg OH ($456,000/24,000 units) $19
Absorption costing unit product cost $39
Production and cost data for the two years are given below:
Year 1 Year 2
Units produced 24,000 24,000
Units sold 19,000 29,000
1. Required:
Prepare a variable costing contribution format income statement for each year.
Variable Costing Income Statement Year 1 Year 2
Variable Expenses:
choose (in order):
Fixed Selling and administrative expenses $
Variable selling and administrative expenses
Variable cost of goods sold
Sales
Fixed manufacturing overhead
Net operating income (loss)
Contribution Margin
Total variable Expenses:
choose:
Contribution Margin $
Variable cost of goods sold
Fixed manufacturing overhead
Net operating income (loss)
Fixed Selling and administrative expenses
Variable selling and administrative expenses
Sales
Fixed expenses:
choose:
Contribution Margin $
Variable cost of goods sold
Fixed manufacturing overhead
Net operating income (loss)
Fixed Selling and administrative expenses
Variable selling and administrative expenses
Sales
Total fixed expenses:
choose:
Contribution Margin $
Variable cost of goods sold
Fixed manufacturing overhead
Net operating income (loss)
Fixed Selling and administrative expenses
Variable selling and administrative expenses
Sales
2.
Reconcile the absorption costing and variable costing net operating income figures for each year.
Year 1 Year 2
Variable costing net operating income (loss) $
Add (deduct) fixed mfg overhead deferred in (released from) inventory under absorption costing
Absorb costing net operating income (loss) $
Explanation / Answer
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