ACC 208 #5

During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows Year 1 915,000 $1,525,000 25,000 875,000 Year 2 Sales(@$61 per unil) Cost of goods sold (@ $35 per unit) Gross margin Selling and administrative expenses 390,000 291,000 650,000 321,000 Net operating income S 99.000 329,000 $3 per unit variable; $246,000 fixed each year The company's $35 unit product cost is computed as follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($360,000 20,000 units) 18 Absorption costing unit product cost S 35 Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on production equipment and buildings Production and cost data for the two years are Units produced Units sold Year1 Year 2 20,000 20,000 5,000 25,00