Answer:
2016 = -$67,000
2017 = $393,000
Explanation:
The income statements for company for each of its first two years under variable costing is shown below:-
<u>Dowell Company</u>
<u> Income statement</u>
<u>Variable costing</u>
<u>Particulars 2016 2017</u>
Sales $966,000 $1,886,000
Less: Variable cost
Direct material $84,000 $164,000
(21,000 × $4) (41,000 × $4)
Direct labor $168,000 $328,000
(21,000 × $8) (41,000 × $8)
Variable overhead $189,000 $369,000
(21,000 × $9) (41,000 × $9)
Variable selling and
administrative expenses $42,000 $82,000
(21,000 × $2) (41,000 × $2)
Total variable cost $483,000 $943,000
Contribution margin $483,000 $943,000
(Sales - Contribution margin)
Less:
Fixed expenses
Fixed overhead $310,000 $310,000
Fixed selling and
administrative expenses $240,000 $240,000
Total of fixed expenses $550,000 $550,000
Net income (loss) -$67,000 $393,000
To determine the net income (loss) we simply deduct the contribution margin from total of fixed assets.
