During Heaton Companyâs first two years of operations, itreported absorption costing net operating income as follows:
Year 1 Year 2 Sales (@ $64 per unit) $ 1,280,000 $ 1,920,000 Cost of goods sold (@ $40 perunit) 800,000 1,200,000 Gross margin 480,000 720,000 Selling and administrativeexpenses* 309,000 339,000 Net operating income $ \171,000\ $ 381,000
* $3 per unit variable; $249,000 fixed each year.
The companyâs $40 unit product cost is computed as follows:
Directmaterials $ 9 Direct labor 11 Variable manufacturingoverhead 3 Fixed manufacturing overhead($425,000 ÷ 25,000 units) 17 Absorption costing unit productcost $ 40
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 25,000 25,000 Units sold 20,000 30,000
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.
During Heaton Companyâs first two years of operations, itreported absorption costing net operating income as follows:
| Year 1 | Year 2 | ||||
| Sales (@ $64 per unit) | $ | 1,280,000 | $ | 1,920,000 | |
| Cost of goods sold (@ $40 perunit) | 800,000 | 1,200,000 | |||
| Gross margin | 480,000 | 720,000 | |||
| Selling and administrativeexpenses* | 309,000 | 339,000 | |||
| Net operating income | $ | \171,000\ | $ | 381,000 | |
* $3 per unit variable; $249,000 fixed each year.
The companyâs $40 unit product cost is computed as follows:
| Directmaterials | $ | 9 |
| Direct labor | 11 | |
| Variable manufacturingoverhead | 3 | |
| Fixed manufacturing overhead($425,000 ÷ 25,000 units) | 17 | |
| Absorption costing unit productcost | $ | 40 |
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 | 25,000 | 25,000 |
| Units sold | 20,000 | 30,000 |
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.
Related questions
During Heaton Companyâs first two years of operations, thecompany reported absorption costing net operating income asfollows: |
| Year 1 | Year 2 | |||
| Sales (@ $63 perunit) | $ | 945,000 | $ | 1,575,000 |
| Cost of goods sold(@ $39 per unit) | 585,000 | 975,000 | ||
| Gross margin | 360,000 | 600,000 | ||
| Selling andadministrative expenses* | 273,000 | 303,000 | ||
| Net operatingincome | $ | 87,000 | $ | 297,000 |
| * $3 per unit variable; $228,000fixed each year. |
| The companyâs $39 unit productcost is computed as follows: |
| Directmaterials | $ | 6 |
| Direct labor | 11 | |
| Variablemanufacturing overhead | 5 | |
| Fixed manufacturingoverhead ($285,000 ÷ 20,000 units) | 17 | |
| Absorption costingunit product cost | $ | 39 |
Forty percent of fixed manufacturing overhead consists of wagesand salaries; the remainder consists |
| Production and cost data for thetwo years are: |
| Year 1 | Year 2 | |
| Units produced | 20,000 | 20,000 |
| Units sold | 15,000 | 25,000 |
| Required: |
| 1. | Prepare a variable costing contribution format income statementfor each year. |
| 2. | Reconcile the absorption costing and the variable costing netoperating income figures for each year. (Losses anddeductions should be indicated with a minus sign.) |
During Heaton Companyâs first two years of operations, thecompany reported absorption costing net operating income asfollows: |
| Year 1 | Year 2 | |||
| Sales (@ $63 perunit) | $ | 945,000 | $ | 1,575,000 |
| Cost of goods sold(@ $39 per unit) | 585,000 | 975,000 | ||
| Gross margin | 360,000 | 600,000 | ||
| Selling andadministrative expenses* | 298,000 | 328,000 | ||
| Net operatingincome | $ | 62,000 | $ | 272,000 |
| * $3 per unit variable; $253,000fixed each year. |
| The companyâs $39 unit productcost is computed as follows: |
| Directmaterials | $ | 6 |
| Direct labor | 12 | |
| Variablemanufacturing overhead | 4 | |
| Fixed manufacturingoverhead ($340,000 ÷ 20,000 units) | 17 | |
| Absorption costingunit product cost | $ | 39 |
Forty percent of fixed manufacturing overhead consists of wagesand salaries; the remainder consists |
| Production and cost data for thetwo years are: |
| Year 1 | Year 2 | |
| Units produced | 20,000 | 20,000 |
| Units sold | 15,000 | 25,000 |
| Required: |
| 1. | Prepare a variable costing contribution format income statementfor each year. |
| 2. | Reconcile the absorption costing and the variable costing netoperating income figures for each year.(Losses should beindicated by a minus sign.) |
During Heaton Companyâs first two years of operations, thecompany reported absorption costing net operating income asfollows: |
| Year 1 | Year 2 | |||
| Sales (@ $60 perunit) | $ | 1,080,000 | $ | 1,680,000 |
| Cost of goods sold(@ $31 per unit) | 558,000 | 868,000 | ||
| Gross margin | 522,000 | 812,000 | ||
| Selling andadministrative expenses* | 302,000 | 332,000 | ||
| Net operatingincome | $ | 220,000 | $ | 480,000 |
| * $3 per unit variable; $248,000fixed each year. |
| The companyâs $31 unit productcost is computed as follows: |
| Directmaterials | $ | 7 |
| Direct labor | 8 | |
| Variablemanufacturing overhead | 2 | |
| Fixed manufacturingoverhead ($322,000 ÷ 23,000 units) | 14 | |
| Absorption costingunit product cost | $ | 31 |
Forty percent of fixed manufacturing overhead consists of wagesand salaries; the remainder consists |
| Production and cost data for thetwo years are: |
| Year 1 | Year 2 | |
| Units produced | 23,000 | 23,000 |
| Units sold | 18,000 | 28,000 |
| Required: |
| 1. | Prepare a variable costing contribution format income statementfor each year. |
| 2. | Reconcile the absorption costing and the variable costing netoperating income figures for each year.(Losses should beindicated by a minus sign.) |
