During Heaton Company's first two years of operations, it reported absorption costing net operating income...
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During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows:
Year 1Year 2Sales (@ $62 per unit)$992,000$1,612,000Cost of goods sold (@ $36 per unit)576,000936,000Gross margin416,000676,000Selling and administrative expenses*299,000329,000Net operating income$117,000$347,000
* $3 per unit variable; $251,000 fixed each year.
The company's $36 unit product cost is computed as follows:
Direct materials$9Direct labor11Variable manufacturing overhead3Fixed manufacturing overhead ($273,000 21,000 units)13Absorption costing unit product cost$36
Production and cost data for the first two years of operations are:
Year 1Year 2Units produced21,00021,000Units sold16,00026,000
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.
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