During Heaton Company\'s first two years of operations, it reported absorption c
ID: 2398455 • Letter: D
Question
During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows Year 1 Year2 Sales ( $62 per unit) Cost of goods sold (e $32 per unit) Gross margin Selling and administrative expenses* Net operating income $ 1,178,000 1,798,000 608,000 928,000 870,000 309,000 339,000 1261,000531,000 570,000 $3 per unit variable; $252,000 fixed each year. The company's $32 unit product cost is computed as follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($312,000 ÷ 24,000 units) Absorption costing unit product cost 13 $ 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 operatons are Units produced Units sold Year 1 Year 2 24,000 24,000 19,000 29,000 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 yearExplanation / Answer
Answer:
1
Computation of unit product cost under variable costing:
Direct materials
$ 7
Direct labor
11
Variable manufacturing overhead
1
Variable costing unit product cost
$ 19
2
HEATON COMPANY
Variable Costing Income Statement
Year 1
Year 2
Unit Sales
19,000
29,000
Sales
$1,178,000
$ 1,798,000
Variable expenses:
Variable cost of goods sold
361,000
551,000
Variable selling and administrative expense
57,000
87,000
Total variable expenses
418,000
638,000
Contribution margin
760,000
1,160,000
Fixed expenses:
Fixed manufacturing overhead
312000
312000
Fixed selling and administrative expenses
252,000
252,000
Total fixed expenses
564,000
564,000
Net operating loss
$ 196,000
$ 596,000
3
Variable costing net operating income
$ 196,000
$ 596,000
Add (deduct): Fixed overhead cost deferred in
inventory under absorption costing
65000
(65,000)
Absorption costing net operating income
$ 261,000
$ 531,000
Working for the answer:
unit Produce
24000
24000
Unit Sold
19000
29000
Units Inventory
5000
5000 excess
of last year
used
Fixed expanses Deffered Per unit
13
13
Total Fixed expanses Deffered
65000
65000
Computation of unit product cost under variable costing:
Direct materials
$ 7
Direct labor
11
Variable manufacturing overhead
1
Variable costing unit product cost
$ 19
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