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During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $60 per
During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows:
Year 1 | Year 2 | |
---|---|---|
Sales (@ $60 per unit) | $ 960,000 | $ 1,560,000 |
Cost of goods sold (@ $42 per unit) | 672,000 | 1,092,000 |
Gross margin | 288,000 | 468,000 |
Selling and administrative expenses* | 301,000 | 331,000 |
Net operating income | $ -13,000 | $ 137,000 |
* $3 per unit variable; $253,000 fixed each year.
The companys $42 unit product cost is computed as follows:
Direct materials | $ 8 |
---|---|
Direct labor | 13 |
Variable manufacturing overhead | 5 |
Fixed manufacturing overhead ($336,000 21,000 units) | 16 |
Absorption costing unit product cost | $ 42 |
Production and cost data for the first two years of operations are:
Year 1 | Year 2 | |
---|---|---|
Units produced | 21,000 | 21,000 |
Units sold | 16,000 | 26,000 |
Required:
- What is the variable costing net operating income in Year 1 and in Year 2?
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