week 2 acct
gysgtclarke
fix2.docx
2.
Problem 5-19 Variable Costing Income Statement; Reconciliation [LO5-2, LO5-3]
During Heaton Company’s first two years of operations, the company reported absorption costing net operating income as follows:
|
|
Year 1 |
|
Year 2 |
||||
|
Sales (@ $61 per unit) |
$ |
1,037,000 |
|
|
$ |
1,647,000 |
|
|
Cost of goods sold (@ $41 per unit) |
|
697,000 |
|
|
|
1,107,000 |
|
|
Gross margin |
|
340,000 |
|
|
|
540,000 |
|
|
Selling and administrative expenses* |
|
301,000 |
|
|
|
331,000 |
|
|
Net operating income |
$ |
39,000 |
|
|
$ |
209,000 |
|
|
|
* $3 per unit variable; $250,000 fixed each year.
The company’s $41 unit product cost is computed as follows:
|
|
|||
|
Direct materials |
$ |
7 |
|
|
Direct labor |
|
13 |
|
|
Variable manufacturing overhead |
|
5 |
|
|
Fixed manufacturing overhead ($352,000 ÷ 22,000 units) |
|
16 |
|
|
Absorption costing unit product cost |
$ |
41 |
|
|
|
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 two years are:
|
|
Year 1 |
|
Year 2 |
||||
|
Units produced |
|
22,000 |
|
|
|
22,000 |
|
|
Units sold |
|
17,000 |
|
|
|
27,000 |
|
|
|
1. Prepare a variable costing contribution format income statement for each year.
Choices are
· Advertising
· Beginning merchandise inventory
· Commissions
· Depreciation
· Ending merchandise inventory
· Fixed manufacturing overhead
· Fixed selling and administrative expenses
· Indirect labor
· Indirect materials
· Purchases
· Sales
· Variable cost of goods sold
· Variable selling and administrative expenses
Ones in yellow below are not one of choices to select
|
Variable Costing |
Year 1 |
Year 2 |
|
Sales |
1,037,000 |
1,647,000 |
|
Variable expenses: |
|
|
|
Direct materials |
119,000 |
189,000 |
|
Direct labor |
221,000 |
351,000 |
|
Variable manufacturing overhead |
85,000 |
135,000 |
|
Variable Selling & Admin expenses |
51,000 |
81,000 |
|
Total variable expenses |
476,000 |
756,000 |
|
Contribution margin |
561,000 |
891,000 |
|
Fixed expenses: |
|
|
|
Fixed manufacturing overhead |
352,000 |
352,000 |
|
Fixed selling and administrative |
250,000 |
250,000 |
|
Total fixed expenses |
602,000 |
602,000 |
|
Net operating income (loss) |
(41,000) |
289,000 |
