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.

Wright Development
Functional (Absorption Costing) Income Statements
Comparative
(in thousands, except site data)	Year 1	Year 2
Sales	Answer	Answer
Cost of sales	Answer	Answer
Gross profit	Answer	Answer
Selling and administrative expenses:	Answer	Answer
Net income (loss)	Answer	Answer

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.

Wright Development
Contribution Income Statements
Comparative
(in thousands, except site data)	Year 1	Year 2
Sales	Answer	Answer
Variable costs	Answer	Answer
Contribution margin	Answer	Answer
Fixed expenses	Answer	Answer
Net income (loss)	Answer	Answer