During Heaton Company's first two years of operations, it reported absorption costing net operating income as...

 

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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 (@ $40 per unit) Year 2 $ 1,798,000 1,160,000 Year 1 $ 1,178,000 760,000 418,000 Selling and administrative expenses* 312,000 Net operating income $ 106,000 $ 296,000 Gross margin 638,000 342,000 * $3 per unit variable; $255,000 fixed each year. The company's $40 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($360,000 + 24,000 units) Absorption costing unit product cost $ 8 255 15 $ 40 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: Units produced Units sold Year 1 Year 2 24,000 24,000 19,000 29,000 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 follows: Sales (@ $62 per unit) Cost of goods sold (@ $40 per unit) Year 2 $ 1,798,000 1,160,000 Year 1 $ 1,178,000 760,000 418,000 Selling and administrative expenses* 312,000 Net operating income $ 106,000 $ 296,000 Gross margin 638,000 342,000 * $3 per unit variable; $255,000 fixed each year. The company's $40 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($360,000 + 24,000 units) Absorption costing unit product cost $ 8 255 15 $ 40 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: Units produced Units sold Year 1 Year 2 24,000 24,000 19,000 29,000 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.