Routsong Company had the above sales and production data for thepast four years:
Year1 Year 2 Year 3 Year 4
Production in units---- 6,000 9,000 4,000 5,000
Sales in units ----------6,000 6,000 5,000 7,000
Selling price per unit, variable cost per unit, and total fixedcost are the same in each year. Which of the following statementsis not correct?
a. Under variable costing, net operating income for Year 1 and Year2 would be the same.
b. Because of the changes in production levels, under variablecosting the unit product cost will change each year.
c. The total net operating income for all four years combined wouldbe the same under variable and absorption costing.
d. Under absorption costing, net operating income in Year 4 wouldbe less than the net operating income in Year 2.
Routsong Company had the above sales and production data for thepast four years:
Year1 Year 2 Year 3 Year 4
Production in units---- 6,000 9,000 4,000 5,000
Sales in units ----------6,000 6,000 5,000 7,000
Selling price per unit, variable cost per unit, and total fixedcost are the same in each year. Which of the following statementsis not correct?
| a. | Under variable costing, net operating income for Year 1 and Year2 would be the same. | |
| b. | Because of the changes in production levels, under variablecosting the unit product cost will change each year. | |
| c. | The total net operating income for all four years combined wouldbe the same under variable and absorption costing. | |
| d. | Under absorption costing, net operating income in Year 4 wouldbe less than the net operating income in Year 2. |
Related questions
uring Heaton Companyâs first two years of operations, it reported absorption costing net operating income as follows:
| Year 1 | Year 2 | ||||
| Sales (@ $62 per unit) | $ | 1,116,000 | $ | 1,736,000 | |
| Cost of goods sold (@ $42 per unit) | 756,000 | 1,176,000 | |||
| Gross margin | 360,000 | 560,000 | |||
| Selling and administrative expenses* | 301,000 | 331,000 | |||
| Net operating income | $ | \59,000\ | $ | 229,000 | |
* $3 per unit variable; $247,000 fixed each year.
The companyâs $42 unit product cost is computed as follows:
| Direct materials | $ | 10 |
| Direct labor | 13 | |
| Variable manufacturing overhead | 5 | |
| Fixed manufacturing overhead ($322,000 ÷ 23,000 units) | 14 | |
| Absorption costing unit product cost | $ | 42 |
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 first two years of operatons are:
| Year 1 | Year 2 | |
| Units produced | 23,000 | 23,000 |
| Units sold | 18,000 | 28,000 |
Required:
1. Using variable costing, what is the unit product cost for both years?
2. What is the variable costing net operating income in Year 1 and in Year 2?
3. Reconcile the absorption costing and the variable costing net operating income figures for each year.
During Heaton Companyâs first two years of operations, it reported absorption costing net operating income as follows:
| Year 1 | Year 2 | ||||
| Sales (@ $62 per unit) | $ | 1,116,000 | $ | 1,736,000 | |
| Cost of goods sold (@ $42 per unit) | 756,000 | 1,176,000 | |||
| Gross margin | 360,000 | 560,000 | |||
| Selling and administrative expenses* | 301,000 | 331,000 | |||
| Net operating income | $ | \59,000\ | $ | 229,000 | |
* $3 per unit variable; $247,000 fixed each year.
The companyâs $42 unit product cost is computed as follows:
| Direct materials | $ | 10 |
| Direct labor | 13 | |
| Variable manufacturing overhead | 5 | |
| Fixed manufacturing overhead ($322,000 ÷ 23,000 units) | 14 | |
| Absorption costing unit product cost | $ | 42 |
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 first two years of operatons are:
| Year 1 | Year 2 | |
| Units produced | 23,000 | 23,000 |
| Units sold | 18,000 | 28,000 |
Required:
1. Using variable costing, what is the unit product cost for both years?
2. What is the variable costing net operating income in Year 1 and in Year 2?
3. Reconcile the absorption costing and the variable costing net operating income figures for each year.
