During Heaton Company\'s first two years of operations, the company reported abs

Question

During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows Year 1 Year 2 Sales (@ $63 per unit) Cost of goods sold ( $38 per unit) $1,102,500 $1,732,500 665,000 1,045,000 Gross margin Selling and administrative expenses* 437,500 318,500 687,500 348,500 Net operating income $ 119,000 339,000 $3 per unit variable; $266,000 fixed each year The company's $38 unit product cost is computed as follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($360,000 + 22,500 units 16 12 4 Absorption costing unit product cost $ 38 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 two years are: Units produced Units sold Year 1 22,500 17,500 27,500 Year 2 22,500

Explanation / Answer

Solution 1:

Solution 2:

Heaton company Variable costing income statement Particulars Year 1 Year 2 Sales $1,102,500.00 $1,732,500.00 Variable Expenses: Direct material $105,000.00 $165,000.00 Direct labor $210,000.00 $330,000.00 Variable manufacturing overhead $70,000.00 $110,000.00 Variable selling and administrative expenses $52,500.00 $82,500.00 Total variable expenses $437,500.00 $687,500.00 Contribution margin $665,000.00 $1,045,000.00 Fixed Expenses: Fixed manufacturing overhead $360,000.00 $360,000.00 Fixed selling and administrative expenses $266,000.00 $266,000.00 Total fixed expenses $626,000.00 $626,000.00 Net operating income (loss) $39,000.00 $419,000.00

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