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

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

b. Variable cost per unit and total fixed costs are unchanged during 2008 and 2009. 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.

Required
1. Prepare income statements for the company for each of its first two years under variable costing.
2. Explain any difference between the absorption costing income and the variable costing income for these twoyears.

Transcribed Image Text:

2008 2009 Sales ($46 per unit) Cost of goods sold ($31 per unit) Gross margin .. Selling and administrative expenses Net Income... ...$920.000 $1840,000 620,000 1240,000 300.000 600,000 340,000 $ 10,000 260,000 . _.. . 290,000 10,000 $ 2008 2009 Units produced Units sold .-.... 20,000 40,000 2008 2009 Varlable selling and administrative ($2.5 per unit) $ 50,000 $100,000 Fixed selling and administrative240,000 240,000 $290,000 $340,000 Total selling and administrative