During Heaton Company’s first two years of operations, the company reported abso
ID: 2425202 • Letter: D
Question
During Heaton Company’s first two years of operations, the company reported absorption costing net operating income as follows:
Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists
of depreciation charges on production equipment and buildings.
Prepare a variable costing contribution format income statement for each year.
Reconcile the absorption costing and the variable costing net operating income figures for each year.(Losses should be indicated by a minus sign.)
During Heaton Company’s first two years of operations, the company reported absorption costing net operating income as follows:
Explanation / Answer
1. Variable costing contribution format income statement:
2. Reconciliation:
Year 1 Year 2 Sales 1,037,000 1,647,000 Variable expenses @ $ 21 per unit 357,000 567,000 Contribution margin 680,000 1,080,000 Less fixed cost Manufacturing 418,000 418,000 Selling and administrative 246,000 246,000 Net operating income 16,000 416,000