Problem 6-19 (Algo) Variable Costing Income Statement; Reconciliation [LO,6-1, LO6-2, LO6-3]

During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows:

	Year 1			Year 2
Sales (@ $64 per unit)	$	1,088,000		$	1,728,000
Cost of goods sold (@ $37 per unit)		629,000			999,000
Gross margin		459,000			729,000
Selling and administrative expenses*		296,000			326,000
Net operating income	$	163,000		$	403,000

* $3 per unit variable; $245,000 fixed each year.

The companys $37 unit product cost is computed as follows:

Direct materials	$	8
Direct labor		12
Variable manufacturing overhead		2
Fixed manufacturing overhead ($330,000 22,000 units)		15
Absorption costing unit product cost	$	37

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.