2 Problem 6-19 Variable Costing Income Statement; Reconciliation [LO6-2, LO6-3]

Question

2 Problem 6-19 Variable Costing Income Statement; Reconciliation [LO6-2, LO6-3] 10 points During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Skippe Sales ( $63 per unit) Cost of goods sold ( $40 per unit) Gross margin Selling and administrative expenses Net operating income $1,197,000 $1,827,000 760,000 1,160,000 667,000 341,000 $126, 000 $ 326, 000 437,000 311,000 eBook Print $3 per unit variable; $254,000 fixed each year Reference The company's $40 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($432,000+ 24,000 units) Absorption costing unit product cost 12 18 $40 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: Year 1 Year 2 Units produced 24,000 24,000 19,000 29,000 Units sold 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 Complete this question by entering your answers in the tabs below. Required RequiredRequired Reconcile the absorption costing and the variable costing net operating income figures for 3 each year. (Enter any losses or deductions as a negative value.) Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes

Explanation / Answer

1 Year 1 Year 2 Direct materials 6 6 Direct labor 12 12 Variable manufacturing overhead 4 4 Unit product cost 22 22 2 Year 1 Year 2 Sales 1197000 $1,827,000 Variable expenses: Variable cost of goods sold 418000 638000 Variable selling and administrative expenses 57000 87000 Total Variable expenses 475000 725000 Contribution margin 722000 1102000 Fixed expenses: Fixed manufacturing overhead 432000 432000 Fixed selling and administrative expenses 254000 254000 Total Fixed expenses 686000 686000 Net operatimg income(loss) $36,000 $416,000 3 Year 1 Year 2 Variable costing net income $36,000 $416,000 Add(deduct) fixed manufacturing overhead deferred in(released) 90000 -90000 Absorption costing net operating income $126,000 $326,000

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