During Heaton Company’s first two years of operations, the company reported abso

Question

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

Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists
of depreciation charges on production equipment and buildings.

Prepare a variable costing contribution format income statement for each year.

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

Explanation / Answer

Year 1 Year 2 Sales 976000 $1,586,000 Variable expenses: Variable cost of goods sold 288000 468000 Variable selling and administrative expenses 48000 78000 Total Variable expenses 336000 546000 Contribution margin 640000 1040000 Fixed expenses: Fixed manufacturing overhead 357000 357000 Fixed selling and administrative expenses 254000 254000 Total Fixed expenses 611000 611000 Net operatimg income(loss) $29,000 $429,000 2 Year 1 Year 2 Variable costing net income $29,000 $429,000 Add(deduct) fixed manufacturing overhead deferred in(released) 85000 -85000 Absorption costing net operating income $114,000 $344,000

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