Question

In: Accounting

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

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) $ 1,098,000 $ 1,708,000
Cost of goods sold (@ $38 per unit) 684,000 1,064,000
Gross margin 414,000 644,000
Selling and administrative expenses* 300,000 330,000
Net operating income $ \114,000\ $ 314,000

* $3 per unit variable; $246,000 fixed each year.

The company’s $38 unit product cost is computed as follows:

Direct materials $ 9
Direct labor 12
Variable manufacturing overhead 4
Fixed manufacturing overhead ($299,000 ÷ 23,000 units) 13
Absorption costing unit product cost $ 38

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 first two years of operatons are:

Year 1 Year 2
Units produced 23,000 23,000
Units sold 18,000 28,000

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.

Solutions

Expert Solution

1) unit product cost under variable costing
Direct materials 9
direct labor 12
variable manufacturing overhead 4
unit product cost under variable costing 25
for both years $26 is the unit product cost
2) Heaton /company
Varible costing income statement
year 1 year 2
Sales 1,098,000 1,708,000
Variable expenses:
Variable cost of goods sold 450000 700000
Variable selling & adm expense 54000 84000
total variable expense 504000 784000
Contribution margin 594,000 924,000
fixed expenses:
fixed manufacturing overhead 299,000 299,000
Fixed selling and adm expense 246,000 246,000
total fixed expense 545,000 545,000
net operating income 49,000 379,000
3)
Reconcilation
year 1 year 2
Variable costing net income 49,000 379,000
Add Fixed oh deferred(released) in ending inventory 65,000 -65,000
Absorption costing net income 114,000 314,000
fixed overhead deferred (released)= ending inventory *FOH per unit
5000*13=$65,000
Reconcilation
year 1 year 2
Variable costing net income 49,000 379,000
Add Fixed oh deferred in ending inventory 85000
less:fixed on released in ending invnetory -85,000
Absorption costing net income 134,000 294,000

Related Solutions

During Heaton Company’s first two years of operations, it reported absorption costing net operating income as...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $63 per unit) $ 1,071,000 $ 1,701,000 Cost of goods sold (@ $34 per unit) 578,000 918,000 Gross margin 493,000 783,000 Selling and administrative expenses* 300,000 330,000 Net operating income $ 193,000 $ 453,000 * $3 per unit variable; $249,000 fixed each year. The company’s $34 unit product cost is computed as follows: Direct materials $ 6...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as...
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) $ 1,037,000 $ 1,647,000 Cost of goods sold (@ $38 per unit) 646,000 1,026,000 Gross margin 391,000 621,000 Selling and administrative expenses* 300,000 330,000 Net operating income $ \91,000\ $ 291,000 * $3 per unit variable; $249,000 fixed each year. The company’s $38 unit product cost is computed as follows: Direct materials $ 7...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as...
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 (@ $41 per unit) 615,000 1,025,000 Gross margin 300,000 500,000 Selling and administrative expenses* 292,000 322,000 Net operating income $ 8,000 $ 178,000 * $3 per unit variable; $247,000 fixed each year. The company’s $41 unit product cost is computed as follows: Direct materials $ 10...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $62 per unit) $ 992,000 $ 1,612,000 Cost of goods sold (@ $38 per unit) 608,000 988,000 Gross margin 384,000 624,000 Selling and administrative expenses* 298,000 328,000 Net operating income $ 86,000 $ 296,000 * $3 per unit variable; $250,000 fixed each year. The company’s $38 unit product cost is computed as follows: Direct materials $ 9...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $62 per unit) $ 1,054,000 $ 1,674,000 Cost of goods sold (@ $35 per unit) 595,000 945,000 Gross margin 459,000 729,000 Selling and administrative expenses* 300,000 330,000 Net operating income $ \159,000\ $ 399,000 * $3 per unit variable; $249,000 fixed each year. The company’s $35 unit product cost is computed as follows: Direct materials $ 6...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $60 per unit) $ 900,000 $ 1,500,000 Cost of goods sold (@ $38 per unit) 570,000 950,000 Gross margin 330,000 550,000 Selling and administrative expenses* 294,000 324,000 Net operating income $ 36,000 $ 226,000 * $3 per unit variable; $249,000 fixed each year. The company’s $38 unit product cost is computed as follows: Direct materials $ 8...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $63 per unit) $ 1,260,000 $ 1,890,000 Cost of goods sold (@ $43 per unit) 860,000 1,290,000 Gross margin 400,000 600,000 Selling and administrative expenses* 314,000 344,000 Net operating income $ 86,000 $ 256,000 * $3 per unit variable; $254,000 fixed each year. The company’s $43 unit product cost is computed as follows: Direct materials $ 9...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $62 per unit) $ 1,054,000 $ 1,674,000 Cost of goods sold (@ $43 per unit) 731,000 1,161,000 Gross margin 323,000 513,000 Selling and administrative expenses* 299,000 329,000 Net operating income $ 24,000 $ 184,000 * $3 per unit variable; $248,000 fixed each year. The company’s $43 unit product cost is computed as follows: Direct materials $ 9...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Sales (@ $62 per unit) $ 1,178,000 $ 1,798,000 Cost of goods sold (@ $35 per unit) 665,000 1,015,000 Gross margin 513,000 783,000 Selling and administrative expenses* 312,000 342,000 Net operating income $ 201,000 $ 441,000 * $3 per unit variable; $255,000 fixed each year. The company’s $35 unit product cost is computed as follows: Direct materials $ 6 Direct labor 12 Variable...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as...
During Heaton Company’s first two years of operations, it reported absorption costing net operating income as follows: Year 1 Year 2 Sales (@ $63 per unit) $ 945,000 $ 1,575,000 Cost of goods sold (@ $29 per unit) 435,000 725,000 Gross margin 510,000 850,000 Selling and administrative expenses* 297,000 327,000 Net operating income $ \213,000\ $ 523,000 * $3 per unit variable; $252,000 fixed each year. The company’s $29 unit product cost is computed as follows: Direct materials $ 6...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT