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During Heaton Companys first two years of operations, it reported absorption costing net operating income...

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Accounting

During Heaton Companys first two years of operations, it reported absorption costing net operating income as follows:

Year 1 Year 2
Sales (@ $62 per unit) $ 1,054,000 $ 1,674,000
Cost of goods sold (@ $31 per unit) 527,000 837,000
Gross margin 527,000 837,000
Selling and administrative expenses* 302,000 332,000
Net operating income $ 225,000 $ 505,000

* $3 per unit variable; $251,000 fixed each year.

The companys $31 unit product cost is computed as follows:

Direct materials $ 5
Direct labor 10
Variable manufacturing overhead 2
Fixed manufacturing overhead ($308,000 22,000 units) 14
Absorption costing unit product cost $ 31

Production and cost data for the first two years of operations are:

Year 1 Year 2
Units produced 22,000 22,000
Units sold 17,000 27,000

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.

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