During Heaton Company$$s first two years of operations, it reported absorption costing net operating income as follows:

Year $1$ Year $2$

Sales $($@ $$63$ per unit$)$ $ $1,071,000$ $ $1,701,000$

Cost of goods sold $($@ $$32$ per unit$)544,000864,000$

Gross margin $527,000837,000$

Selling and administrative expenses$*296,000326,000$

Net operating income $ $231,000$ $ $511,000$

$*$ $$3$ per unit variable; $$245,000$ fixed each year.

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

Direct materials $ $6$

Direct labor $11$

Variable manufacturing overhead $2$

Fixed manufacturing overhead $($$$286,000-$: $22,000$ units$)13$

Absorption costing unit product cost $ $32$

Production and cost data for the first two years of operations are:

Year $1$ Year $2$

Units produced $22,00022,000$

Units sold $17,00027,000$

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. Time Remaining $2$ hours $17$ minutes $27$ seconds$02$:$17$:$27$

Item $2$

Time Remaining $2$ hours $17$ minutes $27$ seconds$02$:$17$:$27$

Which of the following statements is false?

Multiple Choice

Conversion costs include direct labor.

Prime costs include manufacturing overhead.

Prime costs include direct labor.

Conversion costs include manufacturing overhead.