During Heaton Company’s first two years of operations, it reported absorption co
ID: 2334689 • Letter: D
Question
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $62 per unit) $ 1,054,000 $ 1,674,000 Cost of goods sold (@ $36 per unit) 612,000 972,000 Gross margin 442,000 702,000 Selling and administrative expenses* 303,000 333,000 Net operating income $ 9,000 $ 369,000 * $3 per unit variable; $252,000 fixed each year. The company’s $36 unit product cost is computed as follows: Direct materials $ 6 Direct labor 11 Variable manufacturing overhead 4 Fixed manufacturing overhead ($330,000 ÷ 22,000 units) 15 Absorption costing unit product cost $ 36 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 operatons are: Year 1 Year 2 Units produced 22,000 22,000 Units sold 17,000 27,000 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.
Explanation / Answer
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Calculation of Cost per Unit Absorption Costing Variable Costing Direct material $ 6.00 $ 6.00 Direct Labour $ 11.00 $ 11.00 Variable Manufacturing Overhead $ 4.00 $ 4.00 Total Variable Cost $ 21.00 $ 21.00 Fixed Overhead (330000/22000) $ 15.00 Cost per Unit 36 21Related Questions
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