Powell Company produces a single product. Its income statement under absorption costing for its first two years of operation follow.
Sales ($44 per unit) $ 968,000 $ 1,848,000
Cost of goods sold ($29 per unit) 638,000 1,218,000
Gross margin 330,000 630,000
Selling and administrative expenses 294,500 339,500
Net income $ 35,500 $ 290,500
a. Sales and production data for these first two years follow.
Units produced 32,000 32,000
Units sold 22,000 42,000
b. Variable cost per unit and total fixed costs are unchanged during 2010 and 2011. The company’s $29 per unit product cost consists of the following.
Direct materials $ 4
Direct labor 8
Variable overhead 7
Fixed overhead ($320,000/32,000 units) 10
Total product cost per unit $ 29
c. Selling and administrative expenses consist of the following.
Variable selling and administrative ($2.25 per unit) $ 49,500 $ 94,500
Fixed selling and administrative 245,000 245,000
Total selling and administrative $ 294,500 $ 339,500
1. Prepare income statements for the company for each of its first two years under variable costing.
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