Question

During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Sales (@ $63 per unit) Cost of goods sold (€ $34 per unit) Gross margin Selling and administrative expenses Net operating income Year 1 $1,071,000 578,000 493,000 306,000 Year 2 $1,701,000 918,000 783,000 336,000 $\187,000 $ 447,000 *$3 per unit variable: $255,000 fixed each year. The company's $34 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($308,000 + 22,000 units) Absorption costing unit product cost 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 first two years of operatons 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, Complete this question by entering your answers in the tabs below. Required Required Required Using variable costing, what is the unit product cost for both years? Unit product COS! (Required 1 Required 2 > < Prev 3 of 5 Next >

Answer 1

1
	Year 1	Year 2
Direct materials	6	6
Direct labor	11	11
Variable manufacturing overhead	3	3
Unit product cost	20	20
Unit product cost = 20
2
	Year 1	Year 2
Sales	1071000	1701000
Variable expenses:
Variable cost of goods sold	340000	540000
Variable selling and administrative expenses	51000	81000
Total Variable expenses	391000	621000
Contribution margin	680000	1080000
Fixed expenses:
Fixed manufacturing overhead	308000	308000
Fixed selling and administrative expenses	255000	255000
Total Fixed expenses	563000	563000
Net operating income	117000	517000
3
	Year 1	Year 2
Variable costing net operating income	117000	517000
Add: fixed manufacturing overhead deferred in inventory under absorption costing	70000		=5000*14
Deduct: fixed manufacturing overhead released from inventory under absorption costing		(70000)
Absorption costing net operating income	187000	447000