During Heaton Company’s first two years of operations, itreported absorption costing net operating income...

50.1K

Verified Solution

Question

Accounting

During Heaton Company’s first two years of operations, itreported absorption costing net operating income as follows:
Year 1 Year 2
Sales (@ $61 per unit) $ 915,000 $ 1,525,000
Cost of goods sold (@ $31 per unit) 465,000 775,000
Gross margin 450,000 750,000
Selling and administrative expenses* 294,000 324,000
Net operating income $ 156,000 $ 426,000
* $3 per unit variable; $249,000 fixed each year.
The company’s $31 unit product cost is computed as follows:
Direct materials $ 6
Direct labor 8
Variable manufacturing overhead 3
Fixed manufacturing overhead ($280,000 ÷ 20,000 units) 14
Absorption costing unit product cost $ 31
Forty percent of fixed manufacturing overhead consists of wagesand salaries; the remainder consists of depreciation charges onproduction equipment and buildings.
Production and cost data for the first two years of operationsare:
Year 1 Year 2
Units produced 20,000 20,000
Units sold 15,000 25,000
Required:
1. Using variable costing, what is the unit product cost forboth years?
2. What is the variable costing net operating income in Year 1and in Year 2?
3. Reconcile the absorption costing and the variable costing netoperating income figures for each year.

Answer & Explanation Solved by verified expert

4.1 Ratings (483 Votes)

Ans 1 In variable costing method the unit product cost is the sum of only variable manufacturing costs per unit Unit product cost under Variable Costing Direct materials 600 Direct labor 800 Variable manufacturing overhead 300 Total unit product cost 1700 Ans 2 HEATON COMPANY Variable Costing Income Statement PARTICULARS Year 1 Year 2 Sales 915000 1525000 Less See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

In: AccountingDuring Heaton Company’s first two years of operations, itreported absorption costing net operating income as...During Heaton Company’s first two years of operations, itreported absorption costing net operating income as follows:Year 1Year 2Sales (@ $61 per unit)$915,000$1,525,000Cost of goods sold (@ $31 per unit)465,000775,000Gross margin450,000750,000Selling and administrative expenses*294,000324,000Net operating income$156,000$426,000* $3 per unit variable; $249,000 fixed each year.The company’s $31 unit product cost is computed as follows:Direct materials$6Direct labor8Variable manufacturing overhead3Fixed manufacturing overhead ($280,000 ÷ 20,000 units)14Absorption costing unit product cost$31Forty percent of fixed manufacturing overhead consists of wagesand salaries; the remainder consists of depreciation charges onproduction equipment and buildings.Production and cost data for the first two years of operationsare:Year 1Year 2Units produced20,00020,000Units sold15,00025,000Required:1. Using variable costing, what is the unit product cost forboth years?2. What is the variable costing net operating income in Year 1and in Year 2?3. Reconcile the absorption costing and the variable costing netoperating income figures for each year.

	Year 1		Year 2
Sales (@ $61 per unit)	$	915,000	$	1,525,000
Cost of goods sold (@ $31 per unit)		465,000		775,000
Gross margin		450,000		750,000
Selling and administrative expenses*		294,000		324,000
Net operating income	$	156,000	$	426,000


Direct materials	$	6
Direct labor		8
Variable manufacturing overhead		3
Fixed manufacturing overhead ($280,000 ÷ 20,000 units)		14
Absorption costing unit product cost	$	31

	Year 1	Year 2
Units produced	20,000	20,000
Units sold	15,000	25,000