Question

Dowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow. 2016 2017 Sales ($48 per unit) $ 1,104,000 $ 2,064,000 Cost of goods sold ($33 per unit) 759,000 1,419,000 Gross margin 345,000 645,000 Selling and administrative expenses 297,500 347,500 Net income $ 47,500 $ 297,500 Additional Information Sales and production data for these first two years follow. 2016 2017 Units produced 33,000 33,000 Units sold 23,000 43,000 Variable cost per unit and total fixed costs are unchanged during 2016 and 2017. The company's $33 per unit product cost consists of the following. Direct materials $ 5 Direct labor 8 Variable overhead 10 Fixed overhead ($330,000/33,000 units) 10 Total product cost per unit $ 33 Selling and administrative expenses consist of the following. 2016 2017 Variable selling and administrative expenses ($2.5 per unit) $ 57,500 $ 107,500 Fixed selling and administrative expenses 240,000 240,000 Total selling and administrative expenses $ 297,500 $ 347,500 . What are the differences between the absorption costing income and the variable costing income for these two years?

Answer 1

Answer:

Detailed step wise solution is given in the attached tables, The net income and absorption cost income is calculated below for both the years 2016 and 2017.