Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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 (@ $42 per unit) 756,000 1,176,000
Gross margin 360,000 560,000
Selling and administrative expenses* 301,000 331,000
Net operating income $ \59,000\ $ 229,000

* $3 per unit variable; $247,000 fixed each year.

The companys $42 unit product cost is computed as follows:

Direct materials $ 10
Direct labor 13
Variable manufacturing overhead 5
Fixed manufacturing overhead ($322,000 23,000 units) 14
Absorption costing unit product cost $ 42

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 operatons 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.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Ethics A Practical Approach

Authors: Howard J Levine

1st Edition

0692112898, 9780692112892

More Books

Students also viewed these Accounting questions