Question
During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Sales ( $63 per unit) Cost of
During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Sales ( $63 per unit) Cost of goods sold ($35 per unit) Gross margin Selling and administrative expenses* Net operating income $3 per unit variable; $246,000 fixed each year. Year 1 Year 2 $ 945,000 $ 1,575,000 525,000 420,000 291,000 875,000 700,000 321,000 $ 129,000 $ 379,000 The company's $35 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($280,000 20,000 units) Absorption costing unit product cost 11 2 14 $ 35 Production and cost data for the first two years of operations are: Year 1 Year 2. Units produced 20,000 20,000 15,000 25,000 Units sold 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.
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