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 $$8,000$ per site. Storm

drains and driveways are also installed at an average cost of $$10,000$ per site. Selling costs are $6\%$ of sales price. Administrative costs are $$600,000$ per year. Two years

ago, the company bought $2,000$ acres of land for $$7,500,000$ and divided it into $200$ sites of equal size. During that year, $95$ sites were sold at an average price of

$$150,000.$ Last year, the company purchased and developed another $2,000$ acres, divided into $200$ sites. The purchase price was again $$7,500,000.$ Sales totaled $250$

sites last year at an average price of $$150,000.$

Required

a$.$ Prepare functional income statements using absorption costing for each of the two years.

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

b$.$ Prepare contribution income statements using variable costing for each of the two years.

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