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Business, 17.04.2020 23:15 sarahelisabeth444

Dowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow.

2014 2015
Sales ($46 per unit) $920,000 $1,840,000
Cost of goods sold ($31 per unit) 620,000 1,240,000
Gross margin 300,000 600,000
Selling and administrative expenses 290,000 340,000
Net income $10,000 $260,000

a. Sales and production data for these first two years follow.

2014 2015
Units produced 30,000 30,000
Units sold 20,000 40,000

b. Variable cost per unit and total fixed costs are unchanged during 2014 and 2015. The company's $31 per unit product cost consists of the following.

Direct materials $5
Direct labor 9
Variable overhead 7
Fixed overhead ($300,000/30,000 units) 10
Total product cost per unit $31

c. Selling and administrative expenses consist of the following.

2014 2015
Variable selling and administrative expenses ($2.50 per unit) $50,000 $100,000
Fixed selling and administrative expenses 240,000 240,000
Total selling and administrative expenses $290,000 $340,000

Required:
1. Complete income statements for the company for each of its first two years under variable costing.
2. What are the differences between the absorption costing income and the variable costing income for these two years? (Loss amounts should be entered with a minus sign.)

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