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)	$	930,000		$	1,550,000
Cost of goods sold (@ $36 per unit)		540,000			900,000
Gross margin		390,000			650,000
Selling and administrative expenses*		298,000			328,000
Net operating income	$	92,000		$	322,000

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

The companys $36 unit product cost is computed as follows:

Direct materials	$	6
Direct labor		9
Variable manufacturing overhead		3
Fixed manufacturing overhead ($360,000 20,000 units)		18
Absorption costing unit product cost	$	36

Production and cost data for the first two years of operations are:

	Year 1	Year 2
Units produced	20,000	20,000
Units sold	15,000	25,000

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.

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Problem 6-19 (Algo) Variable Costing Income Statement; Reconciliation (LO,6-1, LO6-2, L06-3] 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 (@ $36 per unit) Gross margin Selling and administrative expenses* Net operating income Year 1 930,000 540,000 390,000 298,000 92,000 Year 2 $ 1,550,000 900,000 650,000 328,000 $ 322,000 $ *$3 per unit variable; $253,000 fixed each year. The company's $36 unit product cost is computed as follows: $ Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($360,000 + 20,000 units) Absorption costing unit product cost 6 9 3 18 $ 36 Production and cost data for the first two years of operations are: Units produced Units sold Year 1 20,000 15,000 Year 2 20,000 25,000 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