During Heaton Company’s first two years of operations, it reported absorption co

Question

During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $64 per unit) $ 1,024,000 $ 1,664,000 Cost of goods sold (@ $37 per unit) 592,000 962,000 Gross margin 432,000 702,000 Selling and administrative expenses* 296,000 326,000 Net operating income $ ^,000 $ 376,000 * $3 per unit variable; $248,000 fixed each year. The company’s $37 unit product cost is computed as follows: Direct materials $ 7 Direct labor 11 Variable manufacturing overhead 2 Fixed manufacturing overhead ($357,000 ÷ 21,000 units) 17 Absorption costing unit product cost $ 37 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: Year 1 Year 2 Units produced 21,000 21,000 Units sold 16,000 26,000 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 year.

Explanation / Answer

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 year.

Year 1 Year 2 Direct material 7 7 Direct labour 11 11 Variable manufacturing overhead 2 2 Unit product cost 20 20

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.