Question

Check my work During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Sales ( $62 per unit) Cost of goods sold (e $35 per unit) Gross margin Selling and administrative expenses * Year 1 $1,240,000 700,000 Year 2 $ 1,860,000 1,050,000 810,000 336,000 540,000 306,000 Net operating income $ 1234,000 474,000 $3 per unit variable; $246,000 fixed each year The company's $35 unit product cost is computed as follows: $ 9 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($325,000 25,000 units) 13 $ 35 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 first two years of operations are: Year 1 Year 2 1 of 4 Next> <Prev

Answer 1

Compute the Variable costing Unit Product cost
				Year 1	Year 2
Direct Material				9	9
Direct labour				9	9
Variable Manufacturing overheads				4	4
Variable costing unit prroduct cost				22	22
Construct The Variable Costing Income Statement under FIFO
				YEAR 1		YEAR 2
Sales					1,240,000		1,860,000
Less: Variable cost
variable cost of goods sold				440,000		660,000
Variable selling expense				60,000	500,000	90,000	750,000
Contribution margin					740,000		1,110,000
Fixed expense:
Fixed Manufacturing overheads					325,000		325,000
Fixed selling expense					246,000		246,000
Net operating Income					169,000		539,000
Reconciliation Statement:
				Year1	YEar2
Net income as per Variable costing				169000	539000
Add: Fixed oh deferred				65000
Less: Fixed Oh released					65000
Net Income as per Absorption costing				234000	474000