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.
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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Transcribed Image Text:During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows:
Sales (@$61 per unit)
Cost of goods sold (@$37 per unit)
Gross margin
Selling and administrative expenses*
Net operating income.
*$3 per unit variable; $245,000 fixed each year.
The company's $37 unit product cost is computed as follows:
Direct materials
Direct labor.
Variable manufacturing overhead.
Fixed manufacturing overhead ($368,000+ 23,000 units)
Absorption costing unit product cost
Production and cost data for the first two years of operations are:
Units produced
Units sold
Year 1
23,000
18,000
Year 2
23,000
28,000
Year 1
$ 1,098,000
666,000
432,000
299,000
$ 133,000
$6
11
4
16
$ 37
Year 2
$ 1,708,000
1,036,000
672,000
329,000
$ 343,000
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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Step 1: Introduction to variable costing and absorption costing
VIEWStep 2: Requirement a- Calculation of unit product cost using variable costing
VIEWStep 3: Requirement b- Calculation of variable costing net operating income for both the years
VIEWStep 4: Requirement c- Reconciliation of net operating income under variable costing and absorption costing
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