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 (@ $63 per unit) | $ | 1,071,000 | $ | 1,701,000 | |
| Cost of goods sold (@ $36 per unit) | 612,000 | 972,000 | |||
| 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 $36 unit product cost is computed as follows:
| Direct materials | $ | 6 |
| Direct labor | 11 | |
| Variable manufacturing overhead | 5 | |
| Fixed manufacturing overhead ($308,000 ÷ 22,000 units) | 14 | |
| Absorption costing unit product cost | $ | 36 |
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 operations are:
| Year 1 | Year 2 | |
| Units produced | 22,000 | 22,000 |
| Units sold | 17,000 | 27,000 |
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.
| The unit product cost under variable costing is computed as follows | ||
| Particulars | Year 1 | Year 2 |
| Direct material per unit (A) | 6 | 6 |
| Direct labour per unit (B) | 11 | 11 |
| Variable manufacturing overhead per unit ( C) | 5 | 5 |
| Unit Product Cost under Variable Costing (A+B+C) | 22 | 22 |
2.
| Variable Costing Income Statement | |
| Particular | Year 1 |
| Sales (17000 units * $63) | 1071000 |
| Less: Variable cost (17000 units*25) | 425000 |
| Contribution Margin | 646000 |
| Less: Fixed Cost ( 308000+249000) | 557000 |
| Net Operating Income | 89000 |
| Particular | Year 2 |
| Sales (27000 units * $63) | 1701000 |
| Less: Variable cost (27000 units*25) | 675000 |
| Contribution Margin | 1026000 |
| Less: Fixed Cost ( 308000+249000) | 557000 |
| Net Operating Income | 469000 |
3.
| The reconciliation of absorption and variable costing follows: | ||
| Particular | Year 1 | Year 2 |
| Income under variable costing | 89000 | 469000 |
| Less: Fixed Overhead absorbed (released) | 70000 | (70000) |
| Income under Absorption costing | 159000 | 399000 |
ekkarill92 answered 1 year agoRelated 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...
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