During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $64 per unit) $ 1,088,000 $ 1,728,000 Cost of goods sold (@ $35 per unit) 595,000 945,000 Gross margin 493,000 783,000 Selling and administrative expenses* 303,000 333,000 Net operating income $ 190,000 $ 450,000 * $3 per unit variable; $252,000 fixed each year. The company’s $35 unit product cost is computed as follows: Direct materials $ 8 Direct labor 12 Variable manufacturing overhead 2 Fixed manufacturing overhead ($286,000 ÷ 22,000 units) 13 Absorption costing unit product cost $ 35 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: Year 1 Year 2 Units produced 22,000 22,000 Units sold 17,000 27,000 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.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

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

	Year 1		Year 2
Sales (@ $64 per unit)	$	1,088,000		$	1,728,000
Cost of goods sold (@ $35 per unit)		595,000			945,000
Gross margin		493,000			783,000
Selling and administrative expenses*		303,000			333,000
Net operating income	$	190,000		$	450,000

* $3 per unit variable; $252,000 fixed each year.

The company’s $35 unit product cost is computed as follows:


Direct materials	$	8
Direct labor		12
Variable manufacturing overhead		2
Fixed manufacturing overhead ($286,000 ÷ 22,000 units)		13
Absorption costing unit product cost	$	35

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:

	Year 1	Year 2
Units produced	22,000	22,000
Units sold	17,000	27,000

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.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 3 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Financial Reporting in Hyperinflationary Economies

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions