During Heaton Company’s first two years of operations, itreported absorption costing net operating income as follows: Year 1Year 2 Sales (@ $63 per unit) $ 1,197,000 $ 1,827,000 Cost of goodssold (@ $36 per unit) 684,000 1,044,000 Gross margin 513,000783,000 Selling and administrative expenses* 310,000 340,000 Netoperating income $ 203,000 $ 443,000 * $3 per unit variable;$253,000 fixed each year. The company’s $36 unit product cost iscomputed as follows: Direct materials $ 6 Direct labor 9 Variablemanufacturing overhead 2 Fixed manufacturing overhead ($456,000 ÷24,000 units) 19 Absorption costing unit product cost $ 36 Fortypercent of fixed manufacturing overhead consists of wages andsalaries; the remainder consists of depreciation charges onproduction equipment and buildings. Production and cost data forthe first two years of operations are: Year 1 Year 2 Units produced24,000 24,000 Units sold 19,000 29,000 Required: 1. Using variablecosting, what is the unit product cost for both years? 2. What isthe variable costing net operating income in Year 1 and in Year 2?3. Reconcile the absorption costing and the variable costing netoperating income figures for each year.
