During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows:
Year 1 | Year 2 | ||||
Sales (@ $61 per unit) | $ | 976,000 | $ | 1,586,000 | |
Cost of goods sold (@ $38 per unit) | 608,000 | 988,000 | |||
Gross margin | 368,000 | 598,000 | |||
Selling and administrative expenses* | 294,000 | 324,000 | |||
Net operating income | $ | \74,000\ | $ | 274,000 | |
* $3 per unit variable; $246,000 fixed each year.
The company’s $38 unit product cost is computed as follows:
Direct materials | $ | 8 |
Direct labor | 13 | |
Variable manufacturing overhead | 4 | |
Fixed manufacturing overhead ($273,000 ÷ 21,000 units) | 13 | |
Absorption costing unit product cost | $ | 38 |
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:
Year 1 | Year 2 | |
Units produced | 21,000 | 21,000 |
Units sold | 16,000 | 26,000 |
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.
1 | ||
Year 1 | Year 2 | |
Direct materials | 8 | 8 |
Direct labor | 13 | 13 |
Variable manufacturing overhead | 4 | 4 |
Unit product cost | 25 | 25 |
2 | ||
Year 1 | Year 2 | |
Sales | $976,000 | $1,586,000 |
Variable expenses: | ||
Variable cost of goods sold @ $25 per unit | $400,000 | $650,000 |
Variable selling and administrative expenses @ $3 per unit | $48,000 | $78,000 |
Total Variable expenses | $448,000 | $728,000 |
Contribution margin | $528,000 | $858,000 |
Fixed expenses: | ||
Fixed manufacturing overhead | $273,000 | $273,000 |
Fixed selling and administrative expenses | $246,000 | $246,000 |
Total Fixed expenses | $519,000 | $519,000 |
Net Operating income | $9,000 | $339,000 |
3 | ||
Year 1 | Year 2 | |
Variable costing Net Operating income | $9,000 | $339,000 |
Add/(deduct): Fixed manufacturing overhead deferred in(released) from inventory under absorption costing | 65000 | -65000 |
Absorption costing Net Operating income | $74,000 | $274,000 |
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $64 per unit) $ 1,088,000 $ 1,728,000 Cost of goods sold (@ $38 per unit) 646,000 1,026,000 Gross margin 442,000 702,000 Selling and administrative expenses* 303,000 333,000 Net operating income $ 139,000 $ 369,000 * $3 per unit variable; $252,000 fixed each year. The company’s $38 unit product cost is computed as follows: Direct materials $ 8...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $63 per unit) $ 1,134,000 $ 1,764,000 Cost of goods sold (@ $38 per unit) 684,000 1,064,000 Gross margin 450,000 700,000 Selling and administrative expenses* 307,000 337,000 Net operating income $ 143,000 $ 363,000 * $3 per unit variable; $253,000 fixed each year. The company’s $38 unit product cost is computed as follows: Direct materials $ 9...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $63 per unit) $ 1,008,000 $ 1,638,000 Cost of goods sold (@ $28 per unit) 448,000 728,000 Gross margin 560,000 910,000 Selling and administrative expenses* 293,000 323,000 Net operating income $ \267,000\ $ 587,000 * $3 per unit variable; $245,000 fixed each year. The company’s $28 unit product cost is computed as follows: Direct materials $ 6...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $60 per unit) $ 960,000 $ 1,560,000 Cost of goods sold (@ $44 per unit) 704,000 1,144,000 Gross margin 256,000 416,000 Selling and administrative expenses* 303,000 333,000 Net operating income $ -47,000 $ 83,000 * $3 per unit variable; $255,000 fixed each year. The company’s $44 unit product cost is computed as follows: Direct materials $ 9...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $62 per unit) $ 992,000 $ 1,612,000 Cost of goods sold (@ $35 per unit) 560,000 910,000 Gross margin 432,000 702,000 Selling and administrative expenses* 295,000 325,000 Net operating income $ \137,000\ $ 377,000 * $3 per unit variable; $247,000 fixed each year. The company’s $35 unit product cost is computed as follows: Direct materials $ 7...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $62 per unit) $ 1,054,000 $ 1,674,000 Cost of goods sold (@ $40 per unit) 680,000 1,080,000 Gross margin 374,000 594,000 Selling and administrative expenses* 300,000 330,000 Net operating income $ 74,000 $ 264,000 * $3 per unit variable; $249,000 fixed each year. The company’s $40 unit product cost is computed as follows: Direct materials $ 7...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: * $3 per unit variable; $250,000 fixed each year. The company’s $43 unit product cost is computed as follows: 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: Required: 1. Using variable costing, what is the unit product...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $62 per unit) $ 1,054,000 $ 1,674,000 Cost of goods sold (@ $38 per unit) 646,000 1,026,000 Gross margin 408,000 648,000 Selling and administrative expenses* 300,000 330,000 Net operating income $ 108,000 $ 318,000 * $3 per unit variable; $249,000 fixed each year. The company’s $38 unit product cost is computed as follows: Direct materials $ 6...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $60 per unit) $ 1,080,000 $ 1,680,000 Cost of goods sold (@ $33 per unit) 594,000 924,000 Gross margin 486,000 756,000 Selling and administrative expenses* 303,000 333,000 Net operating income $ \183,000\ $ 423,000 * $3 per unit variable; $249,000 fixed each year. The company’s $33 unit product cost is computed as follows: Direct materials $ 6...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $62 per unit) $ 1,054,000 $ 1,674,000 Cost of goods sold (@ $33 per unit) 561,000 891,000 Gross margin 493,000 783,000 Selling and administrative expenses* 301,000 331,000 Net operating income $ \192,000\ $ 452,000 * $3 per unit variable; $250,000 fixed each year. The company’s $33 unit product cost is computed as follows: Direct materials $ 7...