Required information

Problem 06-1A Variable costing income statement and conversion to absorption costing income (two consecutive years) LO P2, P3

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[The following information applies to the questions displayed below.] Dowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow.

		2018			2019
Sales ($48 per unit)	$	960,000		$	1,920,000
Cost of goods sold ($33 per unit)		660,000			1,320,000
Gross margin		300,000			600,000
Selling and administrative expenses		275,000			310,000
Net income	$	25,000		$	290,000

Additional Information

1. Sales and production data for these first two years follow.

	2018		2019
Units produced	30,000		30,000
Units sold	20,000		40,000

2. Variable cost per unit and total fixed costs are unchanged during 2018 and 2019. The company's $33 per unit product cost consists of the following.

Direct materials	$	5
Direct labor		9
Variable overhead		9
Fixed overhead ($300,000/30,000 units)		10
Total product cost per unit	$	33

3. Selling and administrative expenses consist of the following.

		2018			2019
Variable selling and administrative expenses ($1.75 per unit)	$	35,000		$	70,000
Fixed selling and administrative expenses		240,000			240,000
Total selling and administrative expenses	$	275,000		$	310,000

Problem 06-1A Part 1

1. Prepare income statements for the company for each of its first two years under variable costing. (Loss amounts should be entered with a minus sign.)

Required information 1. Prepare income statements for the company for each of its first two years under variable costing. (Loss amounts should be entered with a minus sign.) DOWELL Company Variable Costing Income Statements 2018 2019 $ 960,000 $ 1,920,000 Sales Direct materials Direct labor Variable overhead Variable selling and administrative expenses Contribution margin Plus: Fixed expenses Fixed selling and administrative costs Net income (loss)