Fowler Company manufactures a single product. Operating data for the company and its absorption costing income statements for the last two years are presented below:
Year 1
Units in beginning inventory ............0
Units produced .......................18,000
Units sold.................................15,000
Sales ...................................$240,000
COGS.....................................150,000
Gross margin ......................... 90,000
Selling and admin expenses ...80,000
Net Operating Income ............$10,000
Year 2
Units in beginning inventory .....3,000
Units produced .......................18,000
Units sold.................................20,000
Sales ...................................$320,000
COGS.....................................200,000
Gross margin ........................120,000
Selling and admin expenses ...90,000
Net Operating Income ............$30,000
Variable manufacturing costs are $6 per unit. Fixed manufacturing overhead totals $72,000 in each year. This overhead is applied at the rate of $4 per unit. Variable selling and administrative expenses are $2 per unit sold.
Required:
a. What was the unit product cost in each year under variable costing?
b. Prepare new income statements for each year using variable costing.
c. Reconcile the absorption costing and variable costing net operating income for each year.