Problem 6-19 Variable Costing Income Statement; Reconciliation [LO6-2, LO6-3] Du

Question

Problem 6-19 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 inoome as follows: Sales (@ $62 per unit) Cost of goods sold (e $40 per unit) $ 992,000 $1,612,000 640,000 1,040,000 Gross margin Selling and administrative expenses 352,000 572.000 303,000 …000 Net operating income $ 49,000 239,000 ·$3 per unit vanable: $255,000 fxed each year. The company's$40 unit product cost computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($367,000+21,000 units) 17 13 Absorption costing unit product cos S 40 Forty percent of fixed manufacturing overhead oonsists of wages and salaries; the remainder consists of depreciaton charges on production equipment and buildings Production and cost data for the two years are: Units produced Units sold 21,00021,000 6000 26,000 1. Prepare a variable costing conesbution format income statement for each year Variable Costing Income Statement A: : 0 888 FA esc F6 FT F2 2 4 6

Explanation / Answer

Solution:

1) Preparing a Variable Costing Contribution Format Income Statement for Each Year:

Heaton Company

Variable costing income statement

2) Reconciling the Absorption Costing and the Variable Costing Net Operating Income for Each Year:

Heaton Company

Variable costing income statement

Year 1 (16,000) Year 2 (26,000) Sales $992,000 $1,612,000 Variable expenses: Variable cost of goods sold ($8 + $13 + $2 = $23) $368,000 $598,000 Variable Selling and administative expense at $3 $48,000 $78,000 Contribution margin $576,000 $936,000 Fixed expenses: Fixed manufacturing overhead $357,000 $357,000 Selling and administative expense $255,000 $255,000 Total Fixed Expenses $612,000 $612,000 Net Operating Income ($36,000) $324,000

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