During Heaton Company\'s first two years of operations, the company reported abs

Question

During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows Year 2 Year 1 510,000 510,000 Sales (@ $60 per unit) Cost of goods sold (@ $30 per unit) $1,020,000 $1,620,000 810,000 Gross margin Selling and administrative expenses* 810,000 329,000 299,000 Net operating income $ 211,000 $481,000 *$3 per unit variable; $248,000 fixed each year The company's $30 unit product cost is computed as follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($286,000 ÷22,000 units) 13 Absorption costing unit product cost $ 30 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 two years are Units produced Units sold Year1 Year 2 22,000 22,000 17,000 27,000

Explanation / Answer

part 1

variable costing contribution statement

Year 1 Year 2

Net operating income under variable costing 61000 461000

Fixed manufacturing overhead deferred in inventory (5000 units × $13)65000 0

year 1 year 2 Revenue 1020000 1620000 Less :Variable Expenses Opening Stock 5000*17=85000 Variable cost of goods sold ($30-13= 17) 17000*17= 289000 27000*17=459000 Available for sale (289000) (544000) Less Closing stock from available for sale 5000*17 =(85000) 0 Gross Contribution Margin =sales - variable cost 646000 1076000 Less:Variable selling and admin expenses 51000(299000-248000) 81000(329000-248000) Contribution Margin 595000 995000 Less Fixed expenses Manufacturing 286000 286000 Selling 248000 248000 Total fixed expenses (534000) (534000) Net operating income(contribution margin- total fixed exp) 61000 461000

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