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)	$ 1,098,000	$ 1,708,000
Cost of goods sold (@ $37 per unit)	666,000	1,036,000
Gross margin	432,000	672,000
Selling and administrative expenses*	307,000	337,000
Net operating income	$ 125,000	$ 335,000

* $3 per unit variable; $253,000 fixed each year.

The company’s $37 unit product cost is computed as follows:

Direct materials	$ 8
Direct labor	13
Variable manufacturing overhead	4
Fixed manufacturing overhead ($276,000 ÷ 23,000 units)	12
Absorption costing unit product cost	$ 37

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.

Answer rating: 100% (QA)

1 Using variable costing the unit product cost for both years would be Direct materials 8 Direct labor13 Variable manufacturing overhead4 Variable costing unit product cost 25 2 To calculate the varia... View the full answer