Question

Acc 201- Please show all work!

During Heaton Company’s first two years of operations, the company reported absorption costing net operating income as follows:

  

	Year 1		Year 2
Sales (@ $62 per unit)	$	1,178,000	$	1,798,000
Cost of goods sold (@ $37 per unit)		703,000		1,073,000
Gross margin		475,000		725,000
Selling and administrative expenses*		368,600		398,600
Net operating income	$	106,400	$	326,400

   

* $3 per unit variable; $311,600 fixed each year.

  

The company’s $37 unit product cost is computed as follows:

  

Direct materials	$	6
Direct labor		9
Variable manufacturing overhead		3
Fixed manufacturing overhead ($456,000 ÷ 24,000 units)		19
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	24,000	24,000
Units sold	19,000	29,000

  

Required:

1.	Prepare a variable costing contribution format income statement for each year.

     

2.	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.)

     

Answer 1

Answer of Part 1:

Explanantion:

1. Variable Costing Unit Product cost = Direct Material + Direct Labor + Variable Manufacturing Overhead
Variable Costing Unit Product Cost = $6 + $9 + $3
Variable Costing Unit Product cost = $18

	Year 1	Year 2
Variable Cost of Goods Sold (@18 per Unit)	(19,000 Unit * $18) = $342,000	(29,000 Unit * $18) = $522,000
Variable Selling and Administrative Expenses @ $3 Per Unit	(19,000 unit * $3) =$57,000	(29,000 unit * $3) =$87,000

Answer of Part 2:

Explanation:

Calculation of Units in Ending Inventory:

	Year 1	Year 2
Beginning Inventory in Units	0	5,000
Add: Units Produced	24,000	24,000
Less: Units Sold	19,000	29,000
Ending Inventory in Units	5,000	0