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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 (@ $63 per
During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows:
Year 1 | Year 2 | |
---|---|---|
Sales (@ $63 per unit) | $ 945,000 | $ 1,575,000 |
Cost of goods sold (@ $42 per unit) | 630,000 | 1,050,000 |
Gross margin | 315,000 | 525,000 |
Selling and administrative expenses* | 299,000 | 329,000 |
Net operating income | $ 16,000 | $ 196,000 |
* $3 per unit variable; $254,000 fixed each year.
The companys $42 unit product cost is computed as follows:
Direct materials | $ 9 |
---|---|
Direct labor | 12 |
Variable manufacturing overhead | 4 |
Fixed manufacturing overhead ($340,000 20,000 units) | 17 |
Absorption costing unit product cost | $ 42 |
Production and cost data for the first two years of operations are:
Year 1 | Year 2 | |
---|---|---|
Units produced | 20,000 | 20,000 |
Units sold | 15,000 | 25,000 |
Required:
Reconcile the absorption costing and the variable costing net operating income figures for each year.
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