During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $60 per unit) $ 1,200,000 $ 1,800,000 Cost of goods sold (@ $34 per unit) 680,000 1,020,000 Gross margin 520,000 780,000 Selling and administrative expenses* 308,000 338,000 Net operating income $ 212,000 $ 442,000 * $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 9 Variable manufacturing overhead 2 Fixed manufacturing overhead ($400,000 ÷ 25,000 units) 16 Absorption costing unit product cost $ 34 Production and cost data for the first two years of operations are: Year 1 Year 2 Units produced 25,000 25,000 Units sold 20,000 30,000 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.
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $60 per unit) $ 1,200,000 $ 1,800,000 Cost of goods sold (@ $34 per unit) 680,000 1,020,000 Gross margin 520,000 780,000 Selling and administrative expenses* 308,000 338,000 Net operating income $ 212,000 $ 442,000 * $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 9 Variable manufacturing overhead 2 Fixed manufacturing overhead ($400,000 ÷ 25,000 units) 16 Absorption costing unit product cost $ 34 Production and cost data for the first two years of operations are: Year 1 Year 2 Units produced 25,000 25,000 Units sold 20,000 30,000 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.
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 (@ $60 per unit) | $ | 1,200,000 | $ | 1,800,000 | |
| Cost of goods sold (@ $34 per unit) | 680,000 | 1,020,000 | |||
| Gross margin | 520,000 | 780,000 | |||
| Selling and administrative expenses* | 308,000 | 338,000 | |||
| Net operating income | $ | 212,000 | $ | 442,000 | |
* $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 | 9 | |
| Variable manufacturing |
2 | |
| Fixed manufacturing overhead ($400,000 ÷ 25,000 units) | 16 | |
| Absorption costing unit product cost | $ | 34 |
Production and cost data for the first two years of operations are:
| Year 1 | Year 2 | |
| Units produced | 25,000 | 25,000 |
| Units sold | 20,000 | 30,000 |
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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