During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $62 per unit) $ 1,178,000 $ 1,798,000 Cost of goods sold (@ $40 per unit) 760,000 1,160,000 Gross margin 418,000 638,000 Selling and administrative expenses* 303,000 333,000 Net operating income $ 115,000 $ 305,000 * $3 per unit variable; $246,000 fixed each year. The company’s $40 unit product cost is computed as follows: Direct materials $ 8 Direct labor 10 Variable manufacturing overhead 3 Fixed manufacturing overhead ($456,000 ÷ 24,000 units) 19 Absorption costing unit product cost $ 40 Production and cost data for the first two years of operations are: Year 1 Year 2 Units produced 24,000 24,000 Units sold 19,000 29,000 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. What is the variable costing net operating income in Year 1 and in Year 2? (Loss amounts should be indicated with a minus sign.) 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 (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing Absorption costing net operating income

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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During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $62 per unit) $ 1,178,000 $ 1,798,000 Cost of goods sold (@ $40 per unit) 760,000 1,160,000 Gross margin 418,000 638,000 Selling and administrative expenses* 303,000 333,000 Net operating income $ 115,000 $ 305,000 * $3 per unit variable; $246,000 fixed each year. The company’s $40 unit product cost is computed as follows: Direct materials $ 8 Direct labor 10 Variable manufacturing overhead 3 Fixed manufacturing overhead ($456,000 ÷ 24,000 units) 19 Absorption costing unit product cost $ 40 Production and cost data for the first two years of operations are: Year 1 Year 2 Units produced 24,000 24,000 Units sold 19,000 29,000 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. What is the variable costing net operating income in Year 1 and in Year 2? (Loss amounts should be indicated with a minus sign.) 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 (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing Absorption costing net operating income

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