During Heaton Company\'s first two years of operations, it reported absorption c

Question

During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows ear ear Sales (e $61 per unit) Cost of goods sold ( $32 per unit) Gross margin Selling and administrative expenses Net operating income $ 1,159,880 1,769,800 608,000 928,000 841,00e 5,e00 551,000 395,00033 5 1246,0001 586,000 $3 per unit variable: $248,000 fixed each year. The company's $32 unit product cost is computed as follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($264,00024,000 units) Absorption costing unit product cost 12 s 32 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:

Explanation / Answer

Solution:

From the given data we need to find the values for given requirements.

Required 1. The unit product cost for both years:

Required 2. The variable costing income statement:

Year1 ($)

Variable cost of goods sold

(608,000 / 32) * 21

= 399,000

(928,000 / 32) * 21

=609,000

Variable selling expense

(608,000 / 32) * 3

(608,000 / 32) * 3

= 57,000

(-) 456,000

(928,000 / 32) * 3

= 87,000

(-) 696,000

Note:  

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  Year 1 Year 2 Direct materials $7 $7 Direct labour $12 $12 Variable manufacturing overheads $2 $2 Variable costing unit product cost   $21   $21

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