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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
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 (@ $36 per unit) Gross margin Selling and administrative expenses* Net operating income Year 1 $ 1,008,000 576,000 432,000 298,000 $ 134,000 Year 2 $ 1,638,000 936,000 702,000 328,000 $ 374,000 *$3 per unit variable: $250,000 fixed each year. The company's $36 unit product cost is computed as follows: $ Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($294,000 + 21,000 units) Absorption costing unit product cost 14 $36 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 operations are: Units produced Units sold Year 1 21,000 16,000 Year 2 21,000 26,000 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
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