Question
During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $62 per
During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $62 per unit) $ 1,116,000 $ 1,736,000 Cost of goods sold (@ $29 per unit) 522,000 812,000 Gross margin 594,000 924,000 Selling and administrative expenses* 303,000 333,000 Net operating income $ 291,000 $ 591,000 * $3 per unit variable; $249,000 fixed each year. The companys $29 unit product cost is computed as follows: Direct materials $ 7 Direct labor 9 Variable manufacturing overhead 2 Fixed manufacturing overhead ($253,000 23,000 units) 11 Absorption costing unit product cost $ 29 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? 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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