Problem 4-19 (Algo) Variable Costing Income Statement; Reconciliation [LO4-2, LO4-3] During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows:

* $3 per unit variable; $251,000 fixed each year.

The companys $32 unit product cost is computed as follows:

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:

$ Sales (@ $61 per unit) Cost of goods sold (@ $32 per unit) Gross margin Selling and administrative expenses* Net operating income Year 1 915,000 480,000 435,000 296,000 139,000 Year 2 $ 1,525,000 800,000 725,000 326,000 $ 399,000 $ $ $ Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($300,000 - 20,000 units) Absorption costing unit product cost 6 9 2 15 $ 32 Units produced Units sold Year 1 20,000 15,000 Year 2 20,000 25,000 Required 1 Required 2 Required 3 Using variable costing, what is the unit product cost for both years? Unit product cost $ 17 Required 1 Required 2 Required 3 What is the variable costing net operating income in Year 1 and in Year 2? (Loss amounts should be indicated with a minus sign.) Year 1 Year 2 Net operating income (loss) Required 1 Required 2 Required 3 Reconcile the absorption costing and the variable costing net operating income figures for each year. Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Year 1 Year 2 Variable costing net operating income (loss) Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing Less: Fixed manufacturing overhead cost released from inventory under absorption costing Absorption costing net operating income