Problem 6 19A Variable Costing Income Statement Reconciliation LO6 2, LO6 3 During Heaton Companys first two years of operations, the company reported absorption costing net operating income as follows Year 1 Year 2 Sales ( $62 per unit) $ 1,147,000 $ 1,767,000 Cost of goods sold ( $40 per unit) 740,000 1,140,000 Gross margin 407,000 627,000 Selling and administrative expenses 329,300 359,300 Net operating income $ 77,700 $ 267,700 $3 per unit variable $273,800 fixed each year The companys $40 unit product cost is computed as follows Direct materials $ 7 Direct labor 12 Variable manufacturing overhead 3 Fixed manufacturing overhead ($423,000 23,500 units) 18 Absorption costing unit product cost $ 40 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 23,500 23,500 Units sold 18,500 28,500 Required 1 Prepare a variable costing contribution format income statement for each year 2 Reconcile the absorption costing and the variable costing net operating income figures for each year (Losses and deductions should be indicated with a minus sign ) Problem 6 19A Variable Costing Income Statement Reconciliation LO6 2, LO6 3 During Heaton Companys first two years of operations, the company reported absorption costing net operating income as follows Year 1 Year 2 Sales ( $62 per unit) $ 1,147,000 $ 1,767,000 Cost of goods sold ( $40 per unit) 740,000 1,140,000 Gross margin 407,000 627,000 Selling and administrative expenses 329,300 359,300 Net operating income $ 77,700 $ 267,700 $3 per unit variable $273,800 fixed each year The companys $40 unit product cost is computed as follows Direct materials $ 7 Direct labor 12 Variable manufacturing overhead 3 Fixed manufacturing overhead ($423,000 23,500 units) 18 Absorption costing unit product cost $ 40 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 23,500 23,500 Units sold 18,500 28,500 Required 1 Prepare a variable costing contribution format income statement for each year 2 Reconcile the absorption costing and the variable costing net operating income figures for each year (Losses and deductions should be indicated with a minus sign )

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Problem 6-19A Variable Costing Income Statement; Reconciliation [LO6-2, LO6-3] During Heaton Companys first two years of operations, the company reported absorption costing net operating income

Problem 6-19A Variable Costing Income Statement; Reconciliation [LO6-2, LO6-3]

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

	Year 1		Year 2
Sales (@ $62 per unit)	$	1,147,000	$	1,767,000
Cost of goods sold (@ $40 per unit)		740,000		1,140,000

Gross margin		407,000		627,000
Selling and administrative expenses*		329,300		359,300

Net operating income	$	77,700	$	267,700

* $3 per unit variable; $273,800 fixed each year.

The companys $40 unit product cost is computed as follows:


Direct materials	$	7
Direct labor		12
Variable manufacturing overhead		3
Fixed manufacturing overhead ($423,000 23,500 units)		18

Absorption costing unit product cost	$	40

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	23,500	23,500
Units sold	18,500	28,500

Required:

1.	Prepare a variable costing contribution format income statement for each year.

2.	Reconcile the absorption costing and the variable costing net operating income figures for each year. (Losses and deductions should be indicated with a minus sign.)

Problem 6-19A Variable Costing Income Statement; Reconciliation [LO6-2, LO6-3] During Heaton Companys first two years of operations, the company reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $62 per unit) $ 1,147,000 $ 1,767,000 Cost of goods sold (@ $40 per unit) 740,000 1,140,000 Gross margin 407,000 627,000 Selling and administrative expenses* 329,300 359,300 Net operating income $ 77,700 $ 267,700 * $3 per unit variable; $273,800 fixed each year. The companys $40 unit product cost is computed as follows: Direct materials $ 7 Direct labor 12 Variable manufacturing overhead 3 Fixed manufacturing overhead ($423,000 23,500 units) 18 Absorption costing unit product cost $ 40 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 23,500 23,500 Units sold 18,500 28,500 Required: 1. Prepare a variable costing contribution format income statement for each year. 2. Reconcile the absorption costing and the variable costing net operating income figures for each year. (Losses and deductions should be indicated with a minus sign.)