Dowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow. 2016 2017
Sales ($48 per unit) $1,056,000 $2,016,000
Cost of goods sold ($33 per unit) 726,000 1,386,000
Gross margin 330,000 630,000
Selling and administrative expenses 289,500 334,500
Net income $40,500 $295,500
Additional Information
a. Sales and production data for these first two years follow.
2016 2017
Units produced 32,000 32,000
Units sold 22,000 42,000
b. Variable cost per unit and total fixed costs are unchanged during 2016 and 2017. The company's $33 per unit product cost consists of the following.
Direct materials $6
Direct labor 9
Variable overhead 8
Fixed overhead ($320,000/32,000 units) 10
Total product cost per unit $33
c. Selling and administrative expenses consist of the following.
2016 2017
Variable selling and administrative expenses ($2.25 per unit) $49,500 $94,500
Fixed selling and administrative expenses 240,000 240,000
Total selling and administrative expenses $289,000 $334,500
Required:
1. Complete income statements for the company for each of its first two years under variable costing.
2. What are the differences between the absorption costing income and the variable costing income for these two years?