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Posted: September 13th, 2024

Variable Costing Income Statement; Reconciliation

Assessment Brief During Heaton Company’s first two years of operations, the company reported absorption costing net operating income as follows:Year 1Year 2 Sales (@ $62 per unit)$1,116,000 $1,736,000 Cost of goods sold (@ $37 per unit)666,000 1,036,000 Gross margin450,000 700,000 Selling and administrative expenses*301,000 331,000 Net operating income$149,000 $369,000 * $3 per unit variable; $247,000 fixed each year.The company’s $37 unit product cost is computed as follows: Direct materials$5 Direct labor10 Variable manufacturing overhead4 Fixed manufacturing overhead ($414,000 ÷ 23,000 units)18 Absorption costing unit product cost$37 Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consistsof depreciation charges on production equipment and buildings.Production and cost data for the two years are:Year 1Year 2 Units produced23,00023,000 Units sold18,00028,000Required:1.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

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