Question
During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales ($60 per
During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales ($60 per unit) Cost of goods sold ( $35 per unit). Gross margin Selling and administrative expenses* Net operating income $ 1,020,000 $ 1,620,000 595,000 425,000 945,000 675,000 301,000 331,000 $ 124,000 $ 344,000 *$3 per unit variable; $250,000 fixed each year. The company's $35 unit product cost is computed as follows: Direct materials Direct labor. Variable manufacturing overhead Fixed manufacturing overhead ($264,000+22,000 units) Absorption costing unit product cost Production and cost data for the first two years of operations are: $ 9 10 4 12 $ 35 Units produced Units sold Required: Year 1 22,000 Year 21 22,000 17,000 27,000 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.
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