Reference no: EM132782764

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)                      $1,260,000           $1,890,000

Cost of goods sold (@ $36 per unit) 720,000             1,080,000

Gross margin                                 540,000              810,000

Selling and administrative expenses         311,000         341,000

Net operating income                          $229,000             $469,000

• $3 per unit variable; $251,000 fixed each year.

The company's $36 unit product cost is computed as follows:

Direct materials $7

Direct labor 11

Variable manufacturing overhead 4

Fixed manufacturing overhead ($350,000 ÷ 25,000 units) 14

Absorption costing unit product cost $36

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

                               Year 1             Year 2

Units produced 25,000             25,000

Units sold 20,000                    30,000

Required:

Problem 1. Using variable costing, what is the unit product cost for both years?

Problem 2. What is the variable costing net operating income in Year 1 and in Year 2?

Problem 3. Reconcile the absorption costing and the variable costing net operating income figures for each year.