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 (@ $63 per unit) | $ | 1,197,000 | $ | 1,827,000 | |
Cost of goods sold (@ $33 per unit) | 627,000 | 957,000 | |||
Gross margin | 570,000 | 870,000 | |||
Selling and administrative expenses* | 305,000 | 335,000 | |||
Net operating income | $ | 265,000 | $ | 535,000 | |
* $3 per unit variable; $248,000 fixed each year.
The company’s $33 unit product cost is computed as follows:
Direct materials | $ | 6 |
Direct labor | 8 | |
Variable manufacturing overhead | 2 | |
Fixed manufacturing overhead ($408,000 ÷ 24,000 units) | 17 | |
Absorption costing unit product cost | $ | 33 |
Production and cost data for the first two years of operations are:
Year 1 | Year 2 | |
Units produced | 24,000 | 24,000 |
Units sold | 19,000 | 29,000 |
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.