Question

2· value 10.00 points During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows Sales (@ $61 per unit) S 976,000 $1,586,000 962,000 Cost of goods sold (@ S37 per unit) Gross margin Selling and administrative expenses Net operating income 592,000 384,000624,000 327,600 297,600 S 86,400 S 296,400 $3 per unit variable, $249,600 fixed each year The company's $37 unit product cost is computed as follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($378,000 -21,000 units) 18

Answer 1

1. Variable Costing Income Statement:
	Per unit	Year 1	Year 2
Units produced		21000	21000
Units sold		16000	26000
Sales	61	976000	1586000
Less: Variable costs:
DM	8	128000	208000
DL	8	128000	208000
Variable Manuf. Overhead	3	48000	78000
Variable Selling & Admin exp.	3	48000	78000
Total Variable costs	22	352000	572000
Contribution	39	624000	1014000
Less: Fixed Costs:
Fixed Manufacturing overhead		378000	378000
Fixed Selling and Admin expenses		249600	249600
Total Fixed costs		627600	627600
Net Operating Income		-3600	386400
2. Reconciliation of absorption costing and variable costing NOI figures:
Variable costing NOI(Loss)		-3600	386400
Add (deduct) fixed manuf. Overhead deferred in inventory under absorption costing		90000	-90000
Absorption costing net operating Income (loss)		86400	296400
(378000*5000/21000=$90000)