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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 (@ $35 per unit) Gross margin Selling and administrative expenses* Net operating income Year 1 $ 1,197,000 665,000 532,000 304,000 $ 228,000 Year 2 $ 1,827,000 1,015,000 812,000 334,000 $ 478,000 * $3 per unit variable; $247,000 fixed each year. The company's $35 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($336,000 + 24,000 units) Absorption costing unit product cost $ 9 10 2 14 $ 35 $ 35 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: Production and cost data for the first two years of operations are: Units produced Units sold Year 1 24,000 19,000 Year 2 24,000 29,000 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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