During Heaton Company\'s first two yoars of operations, the company reported abs
ID: 341858 • Letter: D
Question
During Heaton Company's first two yoars of operations, the company reported absorption costing not operating income as follows: S 930,000 1,530,000 527,000 867,000 403,000663,000 Sales (@ $60 per unit) Cost of goods sold (@ $34 per unit) Gross margin Selling and administrative expenses Net operating income 300,700 330,700 $ 102,300 332,300 ·$3 per unit variable; S254.200 fixed each year. The company's $34 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($369,000 20,500 units)18 $ 34 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 1 Year 2 20,500 20,500 15,50025,500 Required: 1. Prepare a variable costing contribution format income statement for each year. Heaton Company Variable Costing Income Statement Year 1 Year 2
Explanation / Answer
Year 1(15500)
Year 2(25,500)
Sales
930,000
$1,530,000
Less:Variable expenses:
Variable COGS sold(6+9+1=16)
248000
408000
Variable selling & adm exp (300700-254200)/15500=$3
46500
76500
Contribution margin
635,500
1,045,500
Fixed expenses:
Fixed manufacturing overhead
369000
369000
Selling & adm expense
254200
254200
Total ficed exp
623200
623200
Net operatimg income
$12,300
$422,300
year 1
year 2
variable costing net income
$12,300
$422,300
fixed overhead deferred
90000
-90,000
(369000/20500)*5000
Absorption costing net operating income
$102,300
332,300
Working notes for the above answer
W.N.1
Sale units
Year-1
=$930,000/60
=15,500 units
Year-2
=1530,000/60
=25,500 units
Year 1(15500)
Year 2(25,500)
Sales
930,000
$1,530,000
Less:Variable expenses:
Variable COGS sold(6+9+1=16)
248000
408000
Variable selling & adm exp (300700-254200)/15500=$3
46500
76500
Contribution margin
635,500
1,045,500
Fixed expenses:
Fixed manufacturing overhead
369000
369000
Selling & adm expense
254200
254200
Total ficed exp
623200
623200
Net operatimg income
$12,300
$422,300
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