Looking for more tutorials?

Tutorial   14422

During Denton Company’s first two years of operations, the company reported absorption costing net operating income as follows: Year 1 Year ...

Question:

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                 $40,000                

* $3 per unit variable; $250,000 fixed each year.

The company’s $34 unit product cost is computed as follows:                    

  Direct materials                                                                                                             $8  

  Direct labor                                                                                                                     10  

  Variable manufacturing overhead                                                                        2  

  Fixed manufacturing overhead ($350,000 ÷ 25,000 units)                           14  

  Absorption costing unit product cost                                                                    $34  

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.

ATTACHMENTS
question-9.xlsx