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 1 595,000 493,000 Year 2 Sales (@ $64 per unit) Cost of goods sold (@ $35 per unit) $1,088,000 $1,728,000 945,000 Gross margin Selling and administrative expenses* 783,000 346,200 316,200 Net operating income $ 176,800 $ 436,800 * $3 per unit variable; $265,200 fixed each year. The company's $35 unit product cost is computed as follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($286,000 12 13 $ 35 22,000 units) Absorption costing unit product cost 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 Year 1 22,000 17,000 Year 2 22,000 27,000

Explanation / Answer

Year 1 Year 2 Sales 1088000 $1,728,000 Variable expenses: Variable cost of goods sold 374000 594000 Variable selling and administrative expenses 51000 81000 Total Variable expenses 425000 675000 Contribution margin 663000 1053000 Fixed expenses: Fixed manufacturing overhead 286000 286000 Fixed selling and administrative expenses 265200 265200 Total Fixed expenses 551200 551200 Net operatimg income(loss) $111,800 $501,800 2 Year 1 Year 2 Variable costing net income $111,800 $501,800 Add(deduct) fixed manufacturing overhead deferred in(released) 65000 -65000 Absorption costing net operating income $176,800 $436,800

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