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) $ 1,159,000 $ 1,769,000 Cost of goods sold (@ $38 per unit) 722,000 1,102,000 Gross margin 437,000 667,000 Selling and administrative expenses* 305,000 335,000 Net operating income $ 132,000 $ 332,000 * $3 per unit variable; $248,000 fixed each year. The company’s $38 unit product cost is computed as follows: Direct materials $ 10 Direct labor 8 Variable manufacturing overhead 3 Fixed manufacturing overhead ($408,000 ÷ 24,000 units) 17 Absorption costing unit product cost $ 38 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: Using variable costing, what is the unit product cost for both years? What is the variable costing net operating income in Year 1 and in Year 2? Reconcile the absorption costing and the variable costing net operating income figures for each year.

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) $ 1,159,000 $ 1,769,000 Cost of goods sold (@ $38 per unit) 722,000 1,102,000 Gross margin 437,000 667,000 Selling and administrative expenses* 305,000 335,000 Net operating income $ 132,000 $ 332,000 * $3 per unit variable; $248,000 fixed each year. The company’s $38 unit product cost is computed as follows: Direct materials $ 10 Direct labor 8 Variable manufacturing overhead 3 Fixed manufacturing overhead ($408,000 ÷ 24,000 units) 17 Absorption costing unit product cost $ 38 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: Using variable costing, what is the unit product cost for both years? What is the variable costing net operating income in Year 1 and in Year 2? Reconcile the absorption costing and the variable costing net operating income figures for each year.

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter19: Variable Costing (varcost)

Section: Chapter Questions

Problem 4R: To determine the effect of different levels of production on the company’s income, move to cell B7...

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	Year 1	Year 2
Sales (@ $61 per unit)	$ 1,159,000	$ 1,769,000
Cost of goods sold (@ $38 per unit)	722,000	1,102,000
Gross margin	437,000	667,000
Selling and administrative expenses*	305,000	335,000
Net operating income	$ 132,000	$ 332,000

Direct materials	$ 10
Direct labor	8
Variable manufacturing overhead	3
Fixed manufacturing overhead ($408,000 ÷ 24,000 units)	17
Absorption costing unit product cost	$ 38

	Year 1	Year 2
Units produced	24,000	24,000
Units sold	19,000	29,000

Required:

Using variable costing, what is the unit product cost for both years?
What is the variable costing net operating income in Year 1 and in Year 2?
Reconcile the absorption costing and the variable costing net operating income figures for each year.

Complete this question by entering your answers in the tabs below.
Required 1 Required 2 Required 3
Reconcile the absorption costing and the variable costing net operating income figures for each year.
Note: Enter any losses or deductions as a negative value.
Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
Year 1
Variable costing net operating income (loss)
Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under
absorption costing
Absorption costing net operating income
< Required 2
Required 3
$
85,000
132,000
Year 2
(85,000)
$ 332,000

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