Question
During Heaton Company's first two years of operations,it reported absorption costing net operating income as follows: Year 1 Year 2 Sales(@ $ 50 per unit)
During Heaton Company's first two years of operations,it reported absorption costing net operating income as follows:
Year 1 Year 2
Sales(@ $ 50 per unit) $ 950,000 $1,600,000
Cost of goods sold(@ 28 per unit) 532,000 896,000
Gross margin 418,000 704,000
Selling and administrative expenses* 350,000 402,000
Net operating income $ 68,000 $ 302,000
*$4 per unit variable,$274,000 fixed each year.
The company 's $28 unit product cost is computed as follows:
Direct materials $7
Direct labor 7
Variable manufacturing ovrhead 1
Fixed manufacturing overhead($331,500/25,500 unis) 13
Absorption costing unit product cost $ 28
Production andcost data for the first two years of operations are:
year 1 year 2
Units produced 25,500 25,500
Units sold 19,000 32,000
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 1and in year 2?
3.Reconcile the absorption costing and the variable costing net operating income figures for each year
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