Problem 6-19A Variable Costing Income Statement; Reconciliation [LO6-2, LO6-3] D
ID: 2508201 • Letter: P
Question
Problem 6-19A Variable Costing Income Statement; Reconciliation [LO6-2, LO6-3]
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 and deductions should be indicated with a minus sign.)
During Heaton Company’s first two years of operations, the company reported absorption costing net operating income as follows:
Explanation / Answer
Year 1 Year 2 Sales 992000 $1,612,000 Variable expenses: Variable cost of goods sold 288000 468000 Variable selling and administrative expenses 48000 78000 Total Variable expenses 336000 546000 Contribution margin 656000 1066000 Fixed expenses: Fixed manufacturing overhead 399000 399000 Fixed selling and administrative expenses 262400 262400 Total Fixed expenses 661400 661400 Net operatimg income(loss) ($5,400) $404,600 2 Year 1 Year 2 Variable costing net income ($5,400) $404,600 Add(deduct) fixed manufacturing overhead deferred in(released) 95000 -95000 Absorption costing net operating income $89,600 $309,600