During HeatonCompany’s first two years of operations, it reported absorptioncosting net operating income as follows:
| Year 1 | | Year 2 |
| Sales (@ $62 perunit) | $ | 930,000 | | $ | 1,550,000 |
| Cost of goodssold (@ $34 per unit) | | 510,000 | | | 850,000 |
| Grossmargin | | 420,000 | | | 700,000 |
| Selling andadministrative expenses* | | 294,000 | | | 324,000 |
| Net operatingincome | $ | 126,000 | | $ | 376,000 |
|
* $3 per unitvariable; $249,000 fixed each year.
The company’s $34 unitproduct cost is computed as follows:
| | |
| Direct materials | $ | 7 |
| Directlabor | | 10 |
| Variablemanufacturing overhead | | 4 |
| Fixedmanufacturing overhead ($260,000 ÷ 20,000 units) | | 13 |
| Absorptioncosting unit product cost | $ | 34 |
|
Forty percent of fixedmanufacturing overhead consists of wages and salaries; theremainder consists of depreciation charges on production equipmentand buildings.
Production and costdata for the first two years of operations are:
| Year 1 | Year 2 |
| Units produced | 20,000 | 20,000 |
| Units sold | 15,000 | 25,000 |
|
Required:
1. Using variablecosting, what is the unit product cost for both years?
2. What is thevariable costing net operating income in Year 1 and in Year 2?
3. Reconcile theabsorption costing and the variable costing net operating incomefigures for each year.
