Question

Please answer those two questions. Thanks.

During Heaton Company's first two yoars of operations, the company reported absorption costing not operating income as follows: S 930,000 1,530,000 527,000 867,000 403,000663,000 Sales (@ $60 per unit) Cost of goods sold (@ $34 per unit) Gross margin Selling and administrative expenses Net operating income 300,700 330,700 $ 102,300 332,300 ·$3 per unit variable; S254.200 fixed each year. The company's $34 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($369,000 20,500 units)18 $ 34 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 1 Year 2 20,500 20,500 15,50025,500 Required: 1. Prepare a variable costing contribution format income statement for each year. Heaton Company Variable Costing Income Statement Year 1 Year 2

Answer 1

	Year 1(15500)	Year 2(25,500)
Sales	930,000	$1,530,000
Less:Variable expenses:
Variable COGS sold(6+9+1=16)	248000	408000
Variable selling & adm exp (300700-254200)/15500=$3	46500	76500
Contribution margin	635,500	1,045,500
Fixed expenses:
Fixed manufacturing overhead	369000	369000
Selling & adm expense	254200	254200
Total ficed exp	623200	623200
Net operatimg income	$12,300	$422,300

	year 1	year 2
variable costing net income	$12,300	$422,300
fixed overhead deferred	90000	-90,000
	(369000/20500)*5000
Absorption costing net operating income	$102,300	332,300

Working notes for the above answer

W.N.1

Sale units

Year-1

=$930,000/60

=15,500 units

Year-2

=1530,000/60

=25,500 units