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During Denton Company’s first two years of operations, the company reported absorption costing net operating income as follows:

Year 1 Year 2
Sales (@ $64 per unit) $ 1,216,000 $ 1,856,000
Cost of goods sold (@ $32 per unit) 608,000 928,000

Gross margin 608,000 928,000
Selling and administrative expenses* 311,000 341,000

Net operating income $ 297,000 $ 587,000

* $3 per unit variable; $254,000 fixed each year.

The company’s $32 unit product cost is computed as follows:

Direct materials $ 8
Direct labor 8
Variable manufacturing overhead 4
Fixed manufacturing overhead ($288,000 ÷ 24,000 units) 12

Absorption costing unit product cost $ 32

Production and cost data for the two years are given below:

Year 1 Year 2
Units produced 24,000 24,000
Units sold 19,000 29,000


Prepare a variable costing contribution format income statement for each year. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

Variable Costing Income Statement
Year 1 Year 2
$ $

Variable expenses:

Total variable expenses

Fixed expenses:

Total fixed expenses

$ $


Reconcile the absorption costing and variable costing net operating income figures for each year. (Loss amounts and amounts to be deducted should be indicated with a minus sign. Omit the "$" sign in your response.)

Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
Year 1 Year 2
Variable costing net operating income (loss) $ $
Add (deduct) fixed manufacturing overhead
deferred in (released from) inventory under
absorption costing

Absorption costing net operating income (loss) $ $

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