Problem 6-19 (Algo) Variable Costing Income Statement; Reconciliation [LO,6-1, LO6-2, LO6-3]

During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows:

	Year 1	Year 2
Sales (@ $62 per unit)	$ 1,116,000	$ 1,736,000
Cost of goods sold (@ $30 per unit)	540,000	840,000
Gross margin	576,000	896,000
Selling and administrative expenses*	300,000	330,000
Net operating income	$ 276,000	$ 566,000

* $3 per unit variable; $246,000 fixed each year.

The companys $30 unit product cost is computed as follows:

Direct materials	$ 6
Direct labor	10
Variable manufacturing overhead	2
Fixed manufacturing overhead ($276,000 23,000 units)	12
Absorption costing unit product cost	$ 30

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.