Question
During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Sales (@ $63 per unit) Cost of
During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Sales (@ $63 per unit) Cost of goods sold (@ $34 per unit) Gross margin 1,020,000 Year 1 $ 1,260,000 Year 2 $1,890,000 680,000 580,000 306,000 870,000 336,000 $ 274,000 $ 534,000 * * $3 per unit variable; $246,000 fixed each year. Selling and administrative expenses* Net operating income The company's $34 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($375,000 25,000 units) Absorption costing unit product cost $ 6 12 1 15 $ 34 Production and cost data for the first two years of operations are: Year 1 Year 2 Units produced 25,000 25,000 20,000 30,000 Units sold 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.
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