Problem 6-19 Variable Costing Income Statement, Reconciliation [LO6-2, LO6-3] Du
ID: 2390826 • Letter: P
Question
Problem 6-19 Variable Costing Income Statement, Reconciliation [LO6-2, LO6-3] 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) Cost of goods sold ( $38 per unit) Gross margin Selling and administrative expenses Net operating income $ 1,008,000 1,638,000 988,000 650,000 332,000 198,000 318,000 608,000 400,000 302,000 $3 per unit variable; $254,000 fixed each year. The company's $38 unit product cost is computed as follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($336,000 21,000 units) Absorption costing unit product cost 16 $ 38 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 first two years of operations are Units produced Units sold Year 1 Year 2 21,000 21,000 16,000 26,000 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.Explanation / Answer
Compute the Variable costing Unit Product cost Year 1 Year 2 Direct Material 8 8 Direct labour 11 11 Variable Manufacturing overheads 3 3 Variable costing unit prroduct cost 22 22 Construct The Variable Costing Income Statement under FIFO YEAR 1 YEAR 2 Sales 1,008,000 1,638,000 Less: Variable cost variable cost of goods sold 352,000 572,000 Variable selling expense 48,000 400,000 78,000 650,000 Contribution margin 608,000 988,000 Fixed expense: Fixed Manufacturing overheads 336,000 336,000 Fixed selling expense 254,000 254,000 Net operating Income 18,000 398,000 Reconciliation Statement Year1 Year2 Net income as per Variable costing 18000 398000 Add: Fixed OH deferred 80000 (5000 units @ 16) Less: Fixed OH released in beg inventory 80000 (5000 units @16) Net income as per Absorption costing 98000 318000