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 (@ $35 per unit) | 630,000 | 980,000 | |||
Gross margin | 504,000 | 784,000 | |||
Selling and administrative expenses* | 307,000 | 337,000 | |||
Net operating income | $ | 197,000 | $ | 447,000 | |
* $3 per unit variable; $253,000 fixed each year.
The company’s $35 unit product cost is computed as follows:
Direct materials | $ | 8 |
Direct labor | 10 | |
Variable manufacturing overhead | 4 | |
Fixed manufacturing overhead ($299,000 ÷ 23,000 units) | 13 | |
Absorption costing unit product cost | $ | 35 |
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 | 23,000 | 23,000 |
Units sold | 18,000 | 28,000 |
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.
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 (@ $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) $ 1,134,000 $ 1,764,000 Cost of goods sold (@ $27 per unit) 486,000 756,000 Gross margin 648,000 1,008,000 Selling and administrative expenses* 308,000 338,000 Net operating income $ \340,000\ $ 670,000 * $3 per unit variable; $254,000 fixed each year. The company’s $27 unit product cost is computed as follows: Direct materials $ 5...
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 (@ $61 per unit) $ 1,037,000 $ 1,647,000 Cost of goods sold (@ $35 per unit) 595,000 945,000 Gross margin 442,000 702,000 Selling and administrative expenses* 305,000 335,000 Net operating income $ 137,000 $ 367,000 * $3 per unit variable; $254,000 fixed each year. The company’s $35 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 (@ $63 per unit) $ 1,260,000 $ 1,890,000 Cost of goods sold (@ $35 per unit) 700,000 1,050,000 Gross margin 560,000 840,000 Selling and administrative expenses* 306,000 336,000 Net operating income $ \254,000\ $ 504,000 * $3 per unit variable; $246,000 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 (@ $60 per unit) $ 1,020,000 $ 1,620,000 Cost of goods sold (@ $35 per unit) 595,000 945,000 Gross margin 425,000 675,000 Selling and administrative expenses* 299,000 329,000 Net operating income $ 228,000 508,000 * $3 per unit variable; $248,000 fixed each year. The company’s $35 unit product cost is computed as follows: Direct materials $ 7 Direct...
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) $ 930,000 $ 1,550,000 Cost of goods sold (@ $35 per unit) 525,000 875,000 Gross margin 405,000 675,000 Selling and administrative expenses* 293,000 323,000 Net operating income $ \112,000\ $ 352,000 * $3 per unit variable; $248,000 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) $ 1,178,000 $ 1,798,000 Cost of goods sold (@ $35 per unit) 665,000 1,015,000 Gross margin 513,000 783,000 Selling and administrative expenses* 305,000 335,000 Net operating income $ \208,000\ $ 448,000 * $3 per unit variable; $248,000 fixed each year. The company’s $35 unit product cost is computed as follows: Direct materials $ 5...
During Heaton Company’s first two years of operations, the company 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 (@ $30 per unit) 540,000 840,000 Gross margin 540,000 840,000 Selling and administrative expenses* 334,800 364,800 Net operating income $ 205,200 $ 475,200 * $3 per unit variable; $280,800 fixed each year. The...
During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Sales (@ $61 per unit) Cost of goods sold (@ $39 per unit) Gross margin Selling and administrative expenses* Net operating income Year 1 $ 1,098,000 702,000 396,000 307,000 89,000 Year 2 $1,708,000 1,092,000 616,000 337,000 $ 279,000 * $3 per unit variable; $253,000 fixed each year. The company's $39 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing...