In: Accounting
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $61 per unit) $ 915,000 $ 1,525,000 Cost of goods sold (@ $36 per unit) 540,000 900,000 Gross margin 375,000 625,000 Selling and administrative expenses* 294,000 324,000 Net operating income $ 81,000 $ 301,000 * $3 per unit variable; $249,000 fixed each year. The company’s $36 unit product cost is computed as follows: Direct materials $ 6 Direct labor 13 Variable manufacturing overhead 2 Fixed manufacturing overhead ($300,000 ÷ 20,000 units) 15 Absorption costing unit product cost $ 36 Production and cost data for the first two years of operations are: 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 for both years? 2. What is the variable costing net operating income in Year 1 and in Year 2? 3. Reconcile the absorption costing and the variable costing net operating income figures for each year.