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Homework answers / question archive / Dowell Company produces a single product

Dowell Company produces a single product

Accounting

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

 

    2018     2019   Sales ($46 per unit) $ 1,058,000   $ 1,978,000   Cost of goods sold ($31 per unit)   713,000     1,333,000   Gross margin   345,000     645,000   Selling and administrative expenses   291,750     336,750   Net income $ 53,250   $ 308,250  

Additional Information

 

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

    2018   2019   Units produced 33,000   33,000   Units sold 23,000   43,000      

  1. Variable cost per unit and total fixed costs are unchanged during 2018 and 2019. The company's $31 per unit product cost consists of the following.

      Direct materials $ 5   Direct labor   9   Variable overhead   7   Fixed overhead ($330,000/33,000 units)   10   Total product cost per unit $ 31    

  1. Selling and administrative expenses consist of the following.

      2018     2019   Variable selling and administrative expenses ($2.25 per unit) $ 51,750   $ 96,750   Fixed selling and administrative expenses   240,000     240,000   Total selling and administrative expenses $ 291,750   $ 336,750  

2. Prepare a table as in Exhibit 6.12 to convert variable costing income to absorption costing income for both 2018 and 2019. (Loss amounts should be entered with a minus sign.)

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