Homework SourseDuring Heaton Companys first two years of operations the com
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: |
Solution
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| Heaton Company | ||
| Income Statement (Variable costing) | ||
| Year 1 | Year 2 | |
| Sales | $ 1,008,000 | $ 1,638,000 |
| Variable Expenses | ||
| Direct Material | 16,000*$9 = $144,000 | 26,000*$9 = $234,000 |
| Direct Labour | 16,000*$9 = $144,000 | 26,000*$9 = $234,000 |
| Variable Manufacturing overhead | 16,000*$3 = $48,000 | 26,000*$3 = $78,000 |
| Variable selling administrative expenses | 16,000*$3 = $48,000 | 26,000*$3 = $78,000 |
| Total Variable expenses | $ 384,000 | $ 624,000 |
| Contribution margin | $ 624,000 | $ 1,014,000 |
| Fixed Expenses | ||
| Fixed Manufacturing overhead | $ 336,000 | $ 336,000 |
| Fixed selling and administrative expenses | $ 249,000 | $ 249,000 |
| Total Fixed Expenses | $ 585,000 | $ 585,000 |
| net operating income (Loss) | $ 39,000 | $ 429,000 |
