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) | $ 992,000 | $ 1,612,000 |
Cost of goods sold (@ $39 per unit) | 624,000 | 1,014,000 |
Gross margin | 368,000 | 598,000 |
Selling and administrative expenses* | 297,000 | 327,000 |
Net operating income | $ 71,000 | $ 271,000 |
* $3 per unit variable; $249,000 fixed each year.
The companys $39 unit product cost is computed as follows:
Direct materials | $ 8 |
---|---|
Direct labor | 10 |
Variable manufacturing overhead | 1 |
Fixed manufacturing overhead ($420,000 21,000 units) | 20 |
Absorption costing unit product cost | $ 39 |
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. 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.
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