Help me answer accounting question During Heaton Company\'s first two years of o

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Help me answer accounting question

During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows: Year 1 Year 2 Sales $25 per unit) 1,000,000 1,250,000 Cost of goods sold $18 per unit) 720,000 900,000 Gross margin 280,000 350,000 Selling and administrative expenses 210,000 230,000 Net operating income 70,000 20.000 $2 per unit variable, $130,000 fixed each year. The company's $18 unit product cos is computed as follows Direct materials 4 Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($270,000 45,000 units) Absorption costing unit product cost 18 Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists depreciation charges on production equipment and buildings. Production and cost data for the two years are: Yea Year 2 Units produced 45.000 45.000 Units sold 40.000 50,000 Required 1. Prepare a variable costing contribution format income statement for each year. Heaton Company Variable Costing Income Statement Year 1 Year 2 Variable expenses Total variable expenses Fixed expenses: Total fixed expenses Net operating income (loss) Reconcile the absorption costing and the variable costing net operating income figures for each year. Reconci ation of Variable Costing and Absorption Costing Net Operating Incomes Year 1 Year 2 Variable costing net operating income (loss) Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing Absorption costing net operating income (loss)

Explanation / Answer

year 1 year 2 Selling price 25 25 Variable expenses: Direct matertial 4 4 Direct Labor 7 7 Variable Manufacturing overhead 1 1 Variable selling exp 2 2 Total variable Expense 14 14 contribution margin 11 11 total contribution    440,000    550,000 Fixed Expenses: Fixed Manufacturing ovehead    270,000    270,000 Fixed selling and admin exp    130,000    130,000 Total fixed expense    400,000    400,000 net operating income      40,000    150,000 2) reconcilation variable costing net opearting income 40000 150000 Add: fixed man ovehead 30000 -30000 Absorption costing 70000 120000

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