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

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Accounting

During Heaton Company’s first two years of operations, itreported absorption costing net operating income as follows: Year 1Year 2 Sales (@ $63 per unit) $ 1,071,000 $ 1,701,000 Cost of goodssold (@ $37 per unit) 629,000 999,000 Gross margin 442,000 702,000Selling and administrative expenses* 297,000 327,000 Net operatingincome $ 145,000 $ 375,000 * $3 per unit variable; $246,000 fixedeach year. The company’s $37 unit product cost is computed asfollows: Direct materials $ 9 Direct labor 11 Variablemanufacturing overhead 1 Fixed manufacturing overhead ($352,000 ÷22,000 units) 16 Absorption costing unit product cost $ 37 Fortypercent of fixed manufacturing overhead consists of wages andsalaries; the remainder consists of depreciation charges onproduction equipment and buildings. Production and cost data forthe first two years of operations are: Year 1 Year 2 Units produced22,000 22,000 Units sold 17,000 27,000 Required: 1. Using variablecosting, what is the unit product cost for both years? 2. What isthe variable costing net operating income in Year 1 and in Year 2?3. Reconcile the absorption costing and the variable costing netoperating income figures for each year.

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Solution 1 Computation of Unit Product Cost Variable Costing Particulars Year 1 Year 2 Unit Product Cost Direct material 900 900 Direct Labor 1100 1100 Variable manufacturing overhead 100 100 Unit product cost Variable costing See Answer

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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 2 Sales (@ $63 per unit) $ 1,071,000 $ 1,701,000 Cost of goodssold (@ $37 per unit) 629,000 999,000 Gross margin 442,000 702,000Selling and administrative expenses* 297,000 327,000 Net operatingincome $ 145,000 $ 375,000 * $3 per unit variable; $246,000 fixedeach year. The company’s $37 unit product cost is computed asfollows: Direct materials $ 9 Direct labor 11 Variablemanufacturing overhead 1 Fixed manufacturing overhead ($352,000 ÷22,000 units) 16 Absorption costing unit product cost $ 37 Fortypercent of fixed manufacturing overhead consists of wages andsalaries; the remainder consists of depreciation charges onproduction equipment and buildings. Production and cost data forthe first two years of operations are: Year 1 Year 2 Units produced22,000 22,000 Units sold 17,000 27,000 Required: 1. Using variablecosting, what is the unit product cost for both years? 2. What isthe variable costing net operating income in Year 1 and in Year 2?3. Reconcile the absorption costing and the variable costing netoperating income figures for each year.