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) | $ | 1,240,000 | $ | 1,860,000 | |
Cost of goods sold (@ $37 per unit) | 740,000 | 1,110,000 | |||
Gross margin | 500,000 | 750,000 | |||
Selling and administrative expenses* | 311,000 | 341,000 | |||
Net operating income | $ | \189,000\ | $ | 409,000 | |
* $3 per unit variable; $251,000 fixed each year.
The companys $37 unit product cost is computed as follows:
Direct materials | $ | 7 |
Direct labor | 11 | |
Variable manufacturing overhead | 3 | |
Fixed manufacturing overhead ($400,000 25,000 units) | 16 | |
Absorption costing unit product cost | $ | 37 |
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 | 25,000 | 25,000 |
Units sold | 20,000 | 30,000 |
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