Ewing Company Planned to Be in Operation for Three Years

Essay

Ewing Company planned to be in operation for three years.During the first year, it had no sales but incurred $120,000 in variable manufacturing expenses and $40,000 in fixed manufacturing expenses.In the next year, it sold half of the finished goods inventory from the previous year for $100,000 but it had no manufacturing costs.In the third year, it sold the remainder of the inventory for $120,000, had no manufacturing expenses and went out of business.Marketing and administrative expenses were fixed and totalled $20,000 each year.Required:
a.Prepare an income statement for each year using absorption costing in the gross margin format.
b.Prepare an income statement for each year using variable costing contribution margin format.