During Heaton Company\'s first two years of operations, it reported absorption c

Question

During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows Year 1 Year 2 Sales ( $63 per unit) Cost of goods sold ( $37 per unit) Gross margin Selling and administrative expenses $. 1,260,000 740,000 520,000 312,000 1,890,000 1,110,000 780,000 342,000 Net operating income $ 1208,000 438,000 "$3 per unit variable; $252,000 fixed each year. The company's $37 unit product cost is computed as follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($325,000 25,000 units) Absorption costing unit product cost 12 4 13 $ 37 Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on production equipment and buildings Production and cost data for the first two years of operations are

Explanation / Answer

1) unit product cost under variable costing Direct materials 8 direct labor 12 variable manufacturing overhead 4 unit product cost under variable costing 24 for both years $24 is the unit product cost 2) Heaton /company Varible costing income statement year 1 year 2 Sales 1,260,000 1,890,000 Variable expenses: Variable cost of goods sold 480000 720000 Variable selling & adm expense 60000 90000 total variable expense 540000 810000 Contribution margin 720,000 1,080,000 fixed expenses: fixed manufacturing overhead 325,000 325,000 Fixed selling and adm expense 252,000 252,000 total fixed expense 577,000 577,000 net operating income 143,000 503,000 3) Reconcilation year 1 year 2 Variable costing net income 143,000 503,000 Add Fixed oh deferred in ending inventory 65,000 less:fixed on released in ending invnetory -65,000 Absorption costing net income 208,000 438,000

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