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Problem 6 - 1 9 ( Static ) Variable Costing Income Statement; Reconciliation [ LO 6 - 1 , 6 - 2 , LO 6

Problem 6-19(Static) Variable Costing Income Statement; Reconciliation [LO6-1,6-2, LO6-3]
During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows:
Year 1 Year 2
Sales (@ $25 per unit) $ 1,000,000 $ 1,250,000
Cost of goods sold (@ $18 per unit)720,000900,000
Gross margin 280,000350,000
Selling and administrative expenses*210,000230,000
Net operating income $ 70,000 $ 120,000
*$2 per unit variable; $130,000 fixed each year.
The companys $18 unit product cost is computed as follows:
Direct materials $ 4
Direct labor 7
Variable manufacturing overhead 1
Fixed manufacturing overhead ($270,000-: 45,000 units)6
Absorption costing unit product cost $ 18
Production and cost data for the first two years of operations are:
Year 1 Year 2
Units produced 45,00045,000
Units sold 40,00050,000
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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