Determine the absorption costing and variable costing

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Reference no: EM131778523

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.

Reference no: EM131778523

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