Chapter 6 - Q3

During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Sales (@ $61 per unit) Cost of goods sold (@ $34 per unit) Gross margin Selling and administrative expenses* Net operating income Year 1 $ 1,037,000 578,000 459,000 299,000 $ \160,000 Year 2 $1,647,000 918,000 729,000 329,000 $ 400,000 *$3 per unit variable; $248,000 fixed each year. The company's $34 unit product cost is computed as follows: $ 7 11 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($264,000 + 22,000 units) Absorption costing unit product cost 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 first two years of operatons are: Units produced Units sold Year 1 22,000 17,000 Year 2 22,000 27,000 Required: 1. Using variable costing, what is the unit product cost for both years? 2. What is the variable costing net operating income in Year 1 and in Year 2? 3. Reconcile the absorption costing and the variable costing net operating income figures for each year. Required 1 Required 2 Required 3 Using variable costing, what is the unit product cost for both years? Unit product cost Required 1 Required 2 Required 3 What is the variable costing net operating income in Year 1 and in Year 2? Year 1 Year 2 Net operating income (loss) Required 1 Required 2 Required 3 Reconcile the absorption costing and the variable costing net operating income figures for each year. (Enter any losses or deductions as a negative value.) Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Year 1 Variable costing net operating income (loss) Year 2 Absorption costing net operating income