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During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Sales (@ $61 per unit) Cost of
During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Sales (@ $61 per unit) Cost of goods sold (@ $29 per unit) Gross margin Selling and administrative expenses* Net operating income * $3 per unit variable; $254,000 fixed each year. Year 1 Year 2 $ 1,037,000 $ 1,647,000 493,000 544,000 305,000 783,000 864,000 335,000 $ 239,000 $ 529,000 The company's $29 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($242,000 22,000 units) Absorption costing unit product cost $ 7 9 2 11 $ 29 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.
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