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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:

  1. What is the variable costing net operating income in Year 1 and in Year 2?

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