Problem - Variable Costing Income Statement; Reconciliation
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)
|
$1,240,000
|
$1,860,000
|
|
Cost of goods sold (@ $42 per unit)
|
840,000
|
1,260,000
|
|
Gross margin
|
400,000
|
600,000
|
|
Selling and administrative expenses*
|
315,000
|
345,000
|
|
Net operating income
|
$85,000
|
$255,000
|
*$3 per unit variable; $255,000 fixed each year.
The company's $42 unit product cost is computed as follows:
|
Direct materials
|
$6
|
|
Direct labor
|
13
|
|
Variable manufacturing overhead
|
5
|
|
Fixed manufacturing overhead ($450,000 ÷ 25,000 units)
|
18
|
|
Absorption costing unit product cost
|
42
|
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
|
25,000
|
25,000
|
|
Units sold
|
20,000
|
30,000
|
Required -
1. Prepare a variable costing contribution format income statement for each year.
2. Determine the absorption costing and variable costing net operating income figures for each year.