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) | $ 1,054,000 | $ 1,674,000 |
Cost of goods sold (@ $37 per unit) | 629,000 | 999,000 |
Gross margin | 425,000 | 675,000 |
Selling and administrative expenses* | 301,000 | 331,000 |
Net operating income | $ 124,000 | $ 344,000 |
* $3 per unit variable; $250,000 fixed each year.
The companys $37 unit product cost is computed as follows:
Direct materials | $ 9 |
---|---|
Direct labor | 11 |
Variable manufacturing overhead | 3 |
Fixed manufacturing overhead ($308,000 22,000 units) | 14 |
Absorption costing unit product cost | $ 37 |
Production and cost data for the first two years of operations are:
Year 1 | Year 2 | |
---|---|---|
Units produced | 22,000 | 22,000 |
Units sold | 17,000 | 27,000 |
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
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started