|
During Gates Company's first two years of operations, the company reported absorption costing net operating income as follows:
|
|
|
Year 1
|
Year 2
|
|
Sales (@ $62 per unit)
|
$
|
992,000
|
$
|
1,612,000
|
|
Cost of goods sold (@ $38 per unit)
|
|
608,000
|
|
988,000
|
|
|
|
|
|
|
|
Gross margin
|
|
384,000
|
|
624,000
|
|
Selling and administrative expenses*
|
|
296,000
|
|
326,000
|
|
|
|
|
|
|
|
Net operating income
|
$
|
88,000
|
$
|
298,000
|
|
|
|
|
|
|
|
|
|
* $3 per unit variable; $248,000 fixed each year.
|
|
The company's $38 unit product cost is computed as follows:
|
|
|
|
|
|
Direct materials
|
$
|
7
|
|
|
Direct labor
|
|
12
|
|
|
Variable manufacturing overhead
|
|
2
|
|
|
Fixed manufacturing overhead ($357,000 ÷ 21,000 units)
|
|
17
|
|
|
|
|
|
|
|
Absorption costing unit product cost
|
$
|
38
|
|
|
|
|
|
|
|
|
|
|
Production and cost data for the two years are given below:
|
|
|
Year 1
|
Year 2
|
|
|
Units produced
|
21,000
|
21,000
|
|
|
Units sold
|
16,000
|
26,000
|
|
|
|
|
|
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. (Loss and deduction amounts should be indicated with a minus sign.)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|