Reference no: EM133132997

Question - During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows:

	Year 1	Year 2
Sales (@ $63 per unit)	$1,197,000	$1,827,000
Cost of goods sold (@ $40 per unit)	760,000	1,160,000
Gross margin	437,000	667,000
Selling and administrative expenses*	305,000	335,000
Net operating income	$132,000	$332,000

* $3 per unit variable; $248,000 fixed each year.

The company's $40 unit product cost is computed as follows:

Direct materials	$9
Direct labor	13
Variable manufacturing overhead	2
Fixed manufacturing overhead ($384,000 ÷ 24,000 units)	16
Absorption costing unit product cost	$40

Production and cost data for the first two years of operations are:

	Year 1	Year 2
Units produced	24,000	24,000
Units sold	19,000	29,000

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.