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 (@ $34 per unit)646,000986,000Gross margin513,000783,000Selling and administrative expenses*305,000335,000Net operating income$ 208,000$ 448,000* $3 per unit variable; $248,000 fixed each year.The company’s $34 unit product cost is computed as follows:Direct materials$ 7Direct labor13Variable manufacturing overhead2Fixed manufacturing overhead ($288,000 ÷ 24,000 units)12Absorption costing unit product cost$ 34Production and cost data for the first two years of operations are: Year 1Year 2Units produced24,00024,000Units sold19,00029,000Required: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.

Variable costing is a managerial accounting cost concept. Under this method, manufacturing overhead…

Answered: During Heaton Company’s first two years…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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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 (@ $61 per unit)	$ 1,159,000	$ 1,769,000
Cost of goods sold (@ $34 per unit)	646,000	986,000
Gross margin	513,000	783,000
Selling and administrative expenses*	305,000	335,000
Net operating income	$ 208,000	$ 448,000

* $3 per unit variable; $248,000 fixed each year.

The company’s $34 unit product cost is computed as follows:

Direct materials	$ 7
Direct labor	13
Variable manufacturing overhead	2
Fixed manufacturing overhead ($288,000 ÷ 24,000 units)	12
Absorption costing unit product cost	$ 34

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.

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