Question

NOTE All are part of Question 3

During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: 25 points Sales (@ $61 per unit) Cost of goods sold (@ $33 per unit) Gross margin Selling and administrative expenses Net operating income Year 1 $ 1,098,000 594,000 504,000 307,000 $ \197,000 Year 2 $ 1,708,000 924,000 784,000 337,000 $ 447,000 (8 04:39:27 eBook *$3 per unit variable; $253,000 fixed each year. Print The company's $33 unit product cost is computed as follows: References $ 8 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($322,000 + 23,000 units) Absorption costing unit product cost 14 $ 33 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: Units produced Units sold Year 1 23,000 18,000 Year 2 23,000 28,000

Answer 1

Requirement: 1 Calculation of Unit cost Under Variable Costing Year 1 Direct Material 8.00 Direct Labor 10.00 Variable Manufacturing Overhead 1.00 Unit Cost 19.00 Year 2 8.00 10.00 1.00 19.00 Requirement: 2 Heatson company Variable Costing Income Statement Year 1 1098000 Year 2 1708000 Sales ( @61Per unit) Variable Expense: Variable cost of goods sold (@19) Variable Selling and Administrative Expense (@3) Total Varible Expenses Contribution Magin Fixed Expenses : Fixed manufacturing Overheads Fixed Selling and Administrative Expenses Total fixed Expenses Net Operating Income or loss 342000 54000 396000 702000 532000 84000 616000 1092000 322000 253000 575000 127000 322000 253000 575000 517000

Requirement: 3 Reconcile the variable costing and absorption costing Net income Year 1 Year 2 Variable Costing Net Operating Income 127000 517000 Add: Fixed over head in ending inventory 70000 Less: Fixed over head in beginning inventory -70000 Absorption Costing Net Operating Income or loss 197000 447000