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Stuck on this Homework Problem. HELP! During Heaton Companys first two years of operations, the company reported absorption costing net operating income as follows: Year
Stuck on this Homework Problem. HELP!
During Heaton Companys first two years of operations, the company 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) | 720,000 | 900,000 | ||
Gross margin | 280,000 | 350,000 | ||
Selling and administrative expenses* | 210,000 | 230,000 | ||
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 |
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 | 45,000 | 45,000 |
Units sold | 40,000 | 50,000 |
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. |
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