Question

sales $62 per unit	992000	1612000
CGS $37 per unit	592000
gross margin	400000	650000
selling and admin exp	302000	332000
net operating income	98000	318000

* $3 per unit variable; $254,000 fixed each year

The company’s $37 unit product cost is computed as follows: Direct materials $6 Direct Labor 12 variable manufacturing overhead 3 fixed manufacturing over head (336000/21000 units) 16 absorption costing unit product cost 37 Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of depreciation charges on production equipment and buildings. Production and cost data for the two years are:    Year 1 Year 2   Units produced 21,000 21,000   Units sold 16,000 26,000 unit product cost fro both years $22 1. Reconcile the absorption costing and the variable costing net operating income figures for each year. (Losses and deductions should be indicated with a minus sign.) year 1 year 2 variable costing net operating income (loss) ? ? Add: fixed MOH cost deferred in inventory uneder absorption costing ? ? Less: fixed MOH cost released from inventory under absorption costing ? ? Absorption costing net operating income ? ? 2. what is the variable costing net operating income in year 1 and year 2? Year 1 Year 2 net operating income (loss) ? ?

Answer 1

1)	unit product cost under variable costing
	Direct materials				6
	direct labor				12
	variable manufacturing overhead				3
	unit product cost under variable costing				21
	for both years $26 is the unit product cost
2)		Heaton /company
	Varible costing income statement
					year 1	year 2
	Sales				992,000	1,612,000
	Variable expenses:
	Variable cost of goods sold				336000	546000
	Variable selling & adm expense				48000	78000
	total variable expense				384000	624000
	Contribution margin				608,000	988,000
	fixed expenses:
	fixed manufacturing overhead				336,000	336,000
	Fixed selling and adm expense				254,000	254,000
	total fixed expense				590,000	590,000
	net operating income				18,000	398,000

fixed overhead deferred (released)= ending inventory *FOH per unit
			5000*16=$80,000
Reconcilation
					year 1	year 2
Variable costing net income					18,000	398,000
Add Fixed oh deferred in ending inventory					80,000
less:fixed on released in ending invnetory						-80,000
Absorption costing net income					98,000	318,000