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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 (@ $61 per unit) $ 1,098,000 $ 1,708,000
Cost of goods sold (@ $33 per unit) 594,000 924,000
Gross margin 504,000 784,000
Selling and administrative expenses* 303,000 333,000
Net operating income $ 201,000 $ 451,000

* $3 per unit variable; $249,000 fixed each year.

The companys $33 unit product cost is computed as follows:

Direct materials $ 7
Direct labor 10
Variable manufacturing overhead 5
Fixed manufacturing overhead ($253,000 23,000 units) 11
Absorption costing unit product cost $ 33

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

Year 1 Year 2
Units produced 23,000 23,000
Units sold 18,000 28,000

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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