During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Year 1 $ 1,054,000 595,000 459,000 305,000 $ 154,000 Sales (@ $62 per unit) Cost of goods sold (e $35 per unit) Gross margin Selling and administrative expenses* Net operating income *$3 per unit variable: $254,000 fixed each year. The company's $35 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($396,000+ 22,000 units) Absorption costing unit product cost Year 2 $1,674,000 Production and cost data for the first two years of operations are: Year 1 Year 2 22,000 22,000 17,000 27,000 Units produced Units sold 945,000 729,000 335,000 $ 394,000 $5 8 4 18 $ 35 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
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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 (@ $35 per unit)
Gross margin
Selling and administrative expenses
Net operating income
Year 1
Year 2
$ 1,054,000 $1,674,000
595,000
459,000
305,000
$ 154,000
*$3 per unit variable; $254,000 fixed each year.
The company's $35 unit product cost is computed as follows:
Direct materials.
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead ($396,000+ 22,000 units)
Absorption costing unit product cost
Production and cost data for the first two years of operations are:
Year 1
Year 2
22,000
22,000
17,000.
27,000
Units produced
Units sold
945,000
729,000
335,000
$ 394,000
8
4
18
$ 35
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.
Transcribed Image Text: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 (@ $35 per unit) Gross margin Selling and administrative expenses Net operating income Year 1 Year 2 $ 1,054,000 $1,674,000 595,000 459,000 305,000 $ 154,000 *$3 per unit variable; $254,000 fixed each year. The company's $35 unit product cost is computed as follows: Direct materials. Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($396,000+ 22,000 units) Absorption costing unit product cost Production and cost data for the first two years of operations are: Year 1 Year 2 22,000 22,000 17,000. 27,000 Units produced Units sold 945,000 729,000 335,000 $ 394,000 8 4 18 $ 35 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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