**Heaton Company's Net Operating Income and Absorption Costing Analysis**During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows:### Yearly Financial Summary| **Description** | **Year 1** | **Year 2** ||--------------------------------------------------|---------------|---------------|| **Sales (@ $62 per unit)** | $1,178,000 | $1,798,000 || **Cost of goods sold (@ $35 per unit)** | $665,000 | $1,015,000 || **Gross margin** | $513,000 | $783,000 || **Selling and administrative expenses*** | $303,000 | $333,000 || **Net operating income** | $210,000 | $450,000 |*Selling and administrative expenses include $3 per unit variable costs and $246,000 fixed costs each year.### Unit Product Cost BreakdownThe company's $35 unit product cost is computed as follows:| **Description** | **Amount** ||------------------------------------------------------|--------------|| **Direct materials** | $9 || **Direct labor** | $9 || **Variable manufacturing overhead** | $2 || **Fixed manufacturing overhead** ($360,000 ÷ 24,000 units) | $15 || **Absorption costing unit product cost** | $35 |This detailed analysis provides educational insight into how Heaton Company calculates and reports its net operating income using absorption costing. Understanding how these figures are derived can help in comprehensively analyzing a company's financial performance. ### Production and Cost DataFor the first two years of operations, the production and cost data are as follows:| Year | Units produced | Units sold ||-------|----------------|------------|| Year 1| 24,000 | 19,000 || Year 2| 24,000 | 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.** ### Detailed Explanation:The table presented shows the number of units produced and sold over a span of two years. The data is necessary to calculate various costing metrics, specifically utilizing variable costing methods. Key tasks include determining the unit product cost using variable costing, calculating the variable costing net operating income for both years, and reconciling these figures with absorption costing.In the educational context, students are typically required to:- Understand the differences between variable costing and absorption costing.- Perform calculations to determine unit costs.- Compute net operating income using the given production and sales data.- Reconcile differences that arise between different costing methods. These exercises help build an understanding of how different costing methods can impact financial statements and decision-making within a business.

ABSORPTION COSTINGAbsorption Costing is a Cost managerial Accounting method in which All Cost…

Production and cost data for the first two years of operations are: Year 1 Year 2 24,000 24,000 19,000 29,000 Units produced Units sold 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.

Production and cost data for the first two years of operations are: Year 1 Year 2 24,000 24,000 19,000 29,000 Units produced Units sold 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

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Question

**Heaton Company's Net Operating Income and Absorption Costing Analysis**

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

### Yearly Financial Summary

| **Description** | **Year 1** | **Year 2** |
|--------------------------------------------------|---------------|---------------|
| **Sales (@ $62 per unit)** | $1,178,000 | $1,798,000 |
| **Cost of goods sold (@ $35 per unit)** | $665,000 | $1,015,000 |
| **Gross margin** | $513,000 | $783,000 |
| **Selling and administrative expenses*** | $303,000 | $333,000 |
| **Net operating income** | $210,000 | $450,000 |

*Selling and administrative expenses include $3 per unit variable costs and $246,000 fixed costs each year.

### Unit Product Cost Breakdown

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

| **Description** | **Amount** |
|------------------------------------------------------|--------------|
| **Direct materials** | $9 |
| **Direct labor** | $9 |
| **Variable manufacturing overhead** | $2 |
| **Fixed manufacturing overhead** ($360,000 ÷ 24,000 units) | $15 |
| **Absorption costing unit product cost** | $35 |

This detailed analysis provides educational insight into how Heaton Company calculates and reports its net operating income using absorption costing. Understanding how these figures are derived can help in comprehensively analyzing a company's financial performance.

### Production and Cost Data

For the first two years of operations, the production and cost data are as follows:

| Year | Units produced | Units sold |
|-------|----------------|------------|
| Year 1| 24,000 | 19,000 |
| Year 2| 24,000 | 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.**

### Detailed Explanation:

The table presented shows the number of units produced and sold over a span of two years. The data is necessary to calculate various costing metrics, specifically utilizing variable costing methods. Key tasks include determining the unit product cost using variable costing, calculating the variable costing net operating income for both years, and reconciling these figures with absorption costing.

In the educational context, students are typically required to:

- Understand the differences between variable costing and absorption costing.
- Perform calculations to determine unit costs.
- Compute net operating income using the given production and sales data.
- Reconcile differences that arise between different costing methods.

These exercises help build an understanding of how different costing methods can impact financial statements and decision-making within a business.

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