Question

During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows: Sales (@ $61 per unit) Cost of goods sold (@ $39 per unit) Year 1 945,500 604,500 Year 2 $ 1,555,500 9 94,500 Gross margin Selling and administrative expenses 341,099, 288,304 561.000 318,300 Net operating income $ 52,700 $ 242,700 * $3 per unit variable; $241,800 fixed each year, The company's $39 unit product cost is computed Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($410,000 + 20,500 units) w 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 two years are: Units produced Units sold Year 1 20,500 15,500 Year 2 20,500 25,500

Answer 1

Requirement: 1 Heatson company Variable Costing Income Statement Year 1 945500 Year 2 1555500 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 294500 46500 341000 604500 484500 76500 561000 994500 410000 241800 651800 -47300 410000 241800 651800 342700 Requirement: 2 Reconcile the variable costing and absorption costing Net income Year 1 Year 2 Variable Costing Net Operating Income -47300 342700 Add: (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing 100000 - 100000 Absorption Costing Net Operating Income or loss 52700 242700