Question

During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Sales (@ $62 per unit) Cost of goods sold (@ $37 per unit) Gross margin Selling and administrative expenses* Net operating income Year 1 $ 1,054, 000 629,000 425,000 298,000 $ \127,000 Year 2 $ 1,674,000 999,000 675,000 328,000 $ 347,000 * $3 per unit variable; $247,000 fixed each year. The company's $37 unit product cost is computed as follows: ta Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($396,000 + 22,000 units) Absorption costing unit product cost $ 37

Answer 1

1
	Year 1	Year 2
Direct materials	6	6
Direct labor	9	9
Variable manufacturing overhead	4	4
Unit product cost	19	19
Unit product cost = 19
2
	Year 1	Year 2
Sales	1054000	1674000
Variable expenses:
Variable cost of goods sold	323000	513000
Variable selling and administrative expenses	51000	81000
Total Variable expenses	374000	594000
Contribution margin	680000	1080000
Fixed expenses:
Fixed manufacturing overhead	396000	396000
Fixed selling and administrative expenses	247000	247000
Total Fixed expenses	643000	643000
Net operating income(loss)	37000	437000
3
	Year 1	Year 2
Variable costing net operating income(loss)	37000	437000
Add: Fixed manufacturing overhead deferred in inventory under absorption costing	90000		=5000*18
Deduct: Fixed manufacturing overhead released from inventory under absorption costing		(90000)
Absorption costing net operating income	127000	347000