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) $ 1,178,000 $ 1,798,000
Cost of goods sold (@ $35 per unit) 665,000 1,015,000
Gross margin 513,000 783,000
Selling and administrative expenses* 305,000 335,000
Net operating income $ \208,000\ $ 448,000

* $3 per unit variable; $248,000 fixed each year.

The companys $35 unit product cost is computed as follows:

Direct materials $ 5
Direct labor 10
Variable manufacturing overhead 4
Fixed manufacturing overhead ($384,000 24,000 units) 16
Absorption costing unit product cost $ 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:

Year 1 Year 2
Units produced 24,000 24,000
Units sold 19,000 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.

image text in transcribed

Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Year 1 Variable costing net operating income (loss) Year 2 Absorption costing net operating income

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

Finance And Accounting For Business

Authors: Bob Ryan

1st Edition

9781861529930

More Books

Students also viewed these Accounting questions