Question

PROBLEM 6-19 Variable Costing Income Statement; Reconciliation (L06-2, L06-3] During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows: Sales (@$25 per unit) ........ Cost of goods sold (@$18 per unit) Year 1 $1,000,000 720,000 280,000 210,000 $ 70,000 Year 2 $1,250,000 900,000 350,000 230,000 $ 120,000 Gross margin ..... Selling and administrative expenses Net operating income ........... *$2 per unit variable: $130,000 fixed each year. The company's $18 unit product cost is computed as follows: Direct materials .......... Direct labor Variable manufacturing overhead .... Fixed manufacturing overhead ($270,000 = 45,000 units) .. Absorption costing unit product cost ........ Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder con- sists of depreciation charges on production equipment and buildings. Production and cost data for the two years are: Units produced.......... Units sold ............. Year 1 45,000 40,000 Year 2 45,000 50,000 Required: 1. Prepare a variable costing contribution format income statement for each year. 2. Reconcile the absorption costing and the variable costing net operating income figures for each year.