Question
During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows: Year 1/ Year 2 Sales (@ $61
During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows:
Year 1/ Year 2 Sales (@ $61 per unit)................................... $1,159,000 /$1,769,000 Cost of goods sold (@ $31 per unit)................... 589,000/ 899,000 Gross Margin.............................................. 570,000/ 870,000 Selling and administrative expenses.................. 311,000/ 341,000 Net operating income.................................. $259,000 /$529,000
$3.00 per unit variable: $254,000 fixed each year The company's $31 unit product cost is computed as follows: Direct Materials...............................................................$8 Direct Labor...................................................................$9 Variable Manufacturing Overhead..........................................$1 Fixed Manufacturing Overhead ($312,000/24,000 units).............................................$13 Absorption costing unit product cost......................................$31 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 two years are:
Year 1 /Year 2 Units produced................................................. 24,000/ 24,000 Units Sold....................................................... 19,000/ 29,000 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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