During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1Year 2Sales (@ $61 per unit)$ 1,159,000$ 1,769,000Cost of goods sold (@ $38 per unit)722,0001,102,000Gross margin437,000667,000Selling and administrative expenses*305,000335,000Net operating income$ 132,000$ 332,000* $3 per unit variable; $248,000 fixed each year.The company’s $38 unit product cost is computed as follows:Direct materials$ 10Direct labor8Variable manufacturing overhead3Fixed manufacturing overhead ($408,000 ÷ 24,000 units)17Absorption costing unit product cost$ 38Production and cost data for the first two years of operations are: Year 1Year 2Units produced24,00024,000Units sold19,00029,000Required:Using variable costing, what is the unit product cost for both years?What is the variable costing net operating income in Year 1 and in Year 2?Reconcile the absorption costing and the variable costing net operating income figures for each year. Complete this question by entering your answers in the tabs below.Required 1 Required 2Required 3What is the variable costing net operating income in Year and in Year 2?Note: Loss amounts should be indicated with a minus sign.Net operating income (loss)Year 1Year 2< Required 1Required 3> Complete this question by entering your answers in the tabs below.Required 1 Required 2 Required 3Reconcile the absorption costing and the variable costing net operating income figures for each year.Note: Enter any losses or deductions as a negative value.Reconciliation of Variable Costing and Absorption Costing Net Operating IncomesYear 1Variable costing net operating income (loss)Add (deduct) fixed manufacturing overhead deferred in (released from) inventory underabsorption costingAbsorption costing net operating income< Required 2Required 3$85,000132,000Year 2(85,000)$ 332,000

Variable costs are costs that vary with the change in the level of output whereas fixed costs are…

Answered: During Heaton Company’s first two years…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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	Year 1	Year 2
Sales (@ $61 per unit)	$ 1,159,000	$ 1,769,000
Cost of goods sold (@ $38 per unit)	722,000	1,102,000
Gross margin	437,000	667,000
Selling and administrative expenses*	305,000	335,000
Net operating income	$ 132,000	$ 332,000

Direct materials	$ 10
Direct labor	8
Variable manufacturing overhead	3
Fixed manufacturing overhead ($408,000 ÷ 24,000 units)	17
Absorption costing unit product cost	$ 38

	Year 1	Year 2
Units produced	24,000	24,000
Units sold	19,000	29,000

Required:

Using variable costing, what is the unit product cost for both years?
What is the variable costing net operating income in Year 1 and in Year 2?
Reconcile the absorption costing and the variable costing net operating income figures for each year.

Complete this question by entering your answers in the tabs below.
Required 1 Required 2 Required 3
Reconcile the absorption costing and the variable costing net operating income figures for each year.
Note: Enter any losses or deductions as a negative value.
Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
Year 1
Variable costing net operating income (loss)
Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under
absorption costing
Absorption costing net operating income
< Required 2
Required 3
$
85,000
132,000
Year 2
(85,000)
$ 332,000

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