Absorption and Variable Costing Comparisons: Sales Exceed Production Wright Development purchases, develops, and sells commercial building sites. As the sites are sold, they are cleared at an average cost of $2,500 per site. Storm drains and driveways are also installed at an average cost of $5,500 per site. Selling costs are 10 percent of sales price. Administrative costs are $420,000 per year. During 2016, the company bought 1,000 acres of land for $5,000,000 and divided it into 200 sites of equal size. The average selling price per site was $85,000 during 2016 when 50 sites were sold. During 2017, the company purchased and developed another 1,000 acres, divided into 200 sites. The purchase price was again $5,000,000. Sales totaled 300 sites in 2017 at an average price of $85,000.

Required a. Prepare 2016 and 2017 functional income statements using absorption costing.

Use a negative sign only to indicate a net loss for income. Otherwise, do not use negative signs with your answers.

Wright Development
Functional Income Statements
For the Years 2016 and 2017
	2016	2017
Sales
Cost of sales
Gross profit
Selling and administrative expenses:
Net income (loss)

b. Prepare 2016 and 2017 contribution income statements using variable costing.

Use a negative sign only to indicate a net loss for income. Otherwise, do not use negative signs with your answers.

Wright Development
Contribution Income Statements
For the Years 2016 and 2017
	2016	2017
Sales
Variable costs
Contribution margin
Fixed expenses
Net income (loss)

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