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 (@ $43 per unit) Gross margin Selling and administrative expenses* Net operating income Year 1 $ 945,000 645,000 300,000 294,000 $ 6,000 Year 2 $1,575,000 1,075,000 500,000 324,000 $ 176,000 *$3 per unit variable: $249,000 fixed each year. The company's $43 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($360,000 - 20,000 units) Absorption costing unit product cost - $ 43 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 operations are: Units produced Units sold Year 1 Year 2 20,000 20,000 15,000 25,000 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 1 Required 2 Required 3 Using variable costing, what is the unit product cost for both years? Unit product cost < Required 1 Required 2 >

Answer 1

1)	unit product cost under variable costing
	Direct materials				9
	direct labor				12
	variable manufacturing overhead				4
	unit product cost under variable costing				25
	for both years $25 is the unit product cost
2)		Heaton /company
	Varible costing income statement
					year 1	year 2
	Sales				945,000	1,575,000
	Variable expenses:
	Variable cost of goods sold				375000	625000
	Variable selling & adm expense				45000	75000
	total variable expense				420000	700000
	Contribution margin				525,000	875,000
	fixed expenses:
	fixed manufacturing overhead				360,000	360,000
	Fixed selling and adm expense				249,000	249,000
	total fixed expense				609,000	609,000
	net operating income				-84,000	266,000		answer
	fixed overhead deferred (released)= ending inventory *FOH per unit
				5000*18=	90,000
3)
	Reconcilation
						year 1	year 2
	Variable costing net income					-84,000	266,000
	Add Fixed oh deferred in ending inventory					90,000
	less:fixed on released in ending invnetory						-90,000
	Absorption costing net income					6,000	176,000