Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $63 per

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

Year 1 Year 2
Sales (@ $63 per unit) $ 1,134,000 $ 1,764,000
Cost of goods sold (@ $37 per unit) 666,000 1,036,000
Gross margin 468,000 728,000
Selling and administrative expenses* 303,000 333,000
Net operating income $ 165,000 $ 395,000

* $3 per unit variable; $249,000 fixed each year.

The companys $37 unit product cost is computed as follows:

Direct materials $ 6
Direct labor 11
Variable manufacturing overhead 5
Fixed manufacturing overhead ($345,000 23,000 units) 15
Absorption costing unit product cost $ 37

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

Year 1 Year 2

Units produced 23,000 23,000

Units sold 18,000 28,000

Required: 1. Using variable costing, what is the unit product cost for both years? I got $22 already.

2. What is the variable costing net operating income in Year 1 and in Year 2?

Year 1 Year 2
Net operating income (loss)

3. Reconcile the absorption costing and the variable costing net operating income figures for each year.

Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
Year 1 Year 2
Variable costing net operating income (loss)
Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing
Absorption costing net operating income

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Trucking Industry IRS Audit Techniques Guide

Authors: Internal Revenue Service

1st Edition

1304135640, 978-1304135643

More Books

Students also viewed these Accounting questions

Question

What is an interface? What keyword is used to define one?

Answered: 1 week ago