Duif Company's absorption costing income statements for the last two years are presented below:
|
Year 1
|
Year 2
|
|
Sales
|
$70,000
|
$90,000
|
|
Less cost of goods sold:
|
|
|
|
Beginning inventory
|
0
|
6,000
|
|
Add cost of goods manufactured
|
48,000
|
48,000
|
|
Goods available for sale
|
48,000
|
54,000
|
|
Less ending inventory
|
6,000
|
0
|
|
Cost of goods sold
|
42,000
|
54,000
|
|
Gross margin
|
28,000
|
36,000
|
|
Less selling & admin. expenses
|
25,000
|
31,000
|
|
Net operating income
|
$ 3,000
|
$ 5,000
|
Data on units produced and sold in each of these years are given below:
|
Year 1
|
Year 2
|
|
Units in beginning inventory
|
0
|
1,000
|
|
Units produced
|
8,000
|
8,000
|
|
Units sold
|
7,000
|
9,000
|
Fixed factory overhead totaled $16,000 in each year. This overhead was applied to products at a rate of $2 per unit. Variable selling and administrative expenses were $3 per unit sold.
Required:
a. Compute the unit product cost in each year under variable costing.
b. Prepare new income statements for each year using variable costing.
c. Reconcile the absorption costing and variable costing net operating income for each year.