During Heaton Company’s first two years of operations, it reported absorption co

Question

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

* $3 per unit variable; $253,000 fixed each year.

The company’s $34 unit product cost is computed as follows:

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:

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.

use the above table as it is to reconcile please

Year 1 Year 2 Sales (@ $61 per unit) $ 976,000 $ 1,586,000 Cost of goods sold (@ $34 per unit) 544,000 884,000 Gross margin 432,000 702,000 Selling and administrative expenses* 301,000 331,000 Net operating income $ Y,000 $ 371,000

Explanation / Answer

Compute the Variable costing Unit Product cost Year 1 Year 2 Direct Material 10 10 Direct labour 10 10 Variable Manufacturing overheads 3 3 Variable costing unit prroduct cost 23 23 Construct The Variable Costing Income Statement under FIFO YEAR 1 YEAR 2 Sales 976,000 1,586,000 Less: Variable cost    variable cost of goods sold 368,000 598,000    Variable selling expense 48,000 416,000 78,000 676,000 Contribution margin 560,000 910,000 Fixed expense:    Fixed Manufacturing overheads 231,000 231,000    Fixed selling expense 253,000 253,000 Net operating Income 76,000 426,000 Reconciliation Statement YEar1 Year2 Net Income under variable costing 76000 426000 Add: Fixed OH deferred in ending inventry 55000 (5000 units @ 11) Less: Fixed OH released in beg inventory -55000 (5000 units @ 11) Net income under absorption costing 131000 371000

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.