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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Year 1 Year 2 Units produced... Units sold . 25,000 20,000 25,000 30,000 Year 1 Year 2 Sales (at $50 per unit). Cost of goods sold: Beginning inventory.. Add cost of goods manufactured (at $34 per unit) Goods available for sale . $1,500,000 $1000,000 T0,000 850,000 1020,000 850,000 850,000 170.000 680000 320,000 310,000 $ 10,000 Less ending inventory (at $34 per unit) Cost of goods sold.. Grass margin.. Selling and administrative expenses*. Operating income.... 1,020,000 480,000 340,000 $ 140,000 *$3 per unit variable; $250,000 fixed each year.