Question

During Durton Company’s first two years of operations, the company reported absorption
costing operating income as shown below. Production and cost data for the two years are given:
The company’s \$34 unit product cost is computed as follows:
Direct materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$ 8
Direct labour. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Variable manufacturing overhead. . . . . . . . . . . . . . . . . . . . . . 2
Fixed manufacturing overhead (\$350,000 ÷ 25,000 units) . . 14
Unit product cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$34
Required:
1. Prepare a variable costing income statement for each year in the contribution format.
2. Reconcile the absorption costing and variable costing operating income figures for each year.

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