1) Based on the following assumptions and financial information, select all the true statements.
Year 1
Year 2
Year 3
Year 4
Production in units
4,000
6,000
8,000
4,000
Sales in units
4,000
3,000
3,000
11,000
(1) Selling price per unit, variable cost per unit, and total fixed costs do not change during the four years.
(2) There is no beginning inventory at Year 1.
A. The combined four year net operating income would be the same under variable and absorption costing.
B. Because of the changes in production level, under absorption costing the unit product cost will change each year.
C. Under variable costing, net operating income will be less in Year 1 than in Year 2.
D. Under absorption costing, net operating income will be the same in Year 2 and Year 3.
E. Under variable costing, net operating income will be the same in Year 2 and Year 3.
2)
Sales above the break-even point will result in net profit equal to _______.
A. number of units above break-even times fixed cost per unit
B. number of units above break-even times variable cost per unit
C. number of units above break-even times contribution margin per unit
D. number of units above break-even times sales price per unit
1) Based on the following assumptions and financial information, select all the true statements.
| Year 1 | Year 2 | Year 3 | Year 4 | |
| Production in units | 4,000 | 6,000 | 8,000 | 4,000 |
| Sales in units | 4,000 | 3,000 | 3,000 | 11,000 |
(1) Selling price per unit, variable cost per unit, and total fixed costs do not change during the four years.
(2) There is no beginning inventory at Year 1.
| A. | The combined four year net operating income would be the same under variable and absorption costing. | |
| B. | Because of the changes in production level, under absorption costing the unit product cost will change each year. | |
| C. | Under variable costing, net operating income will be less in Year 1 than in Year 2. | |
| D. | Under absorption costing, net operating income will be the same in Year 2 and Year 3. | |
| E. | Under variable costing, net operating income will be the same in Year 2 and Year 3. |
2)
Sales above the break-even point will result in net profit equal to _______.
| A. | number of units above break-even times fixed cost per unit | |
| B. | number of units above break-even times variable cost per unit | |
| C. | number of units above break-even times contribution margin per unit | |
| D. | number of units above break-even times sales price per unit |
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Related questions
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) | $ | 992,000 | $ | 1,612,000 | |
| Cost of goods sold (@ $38 per unit) | 608,000 | 988,000 | |||
| Gross margin | 384,000 | 624,000 | |||
| Selling and administrative expenses* | 294,000 | 324,000 | |||
| Net operating income | $ | \90,000\ | $ | 300,000 | |
* $3 per unit variable; $246,000 fixed each year.
The companyâs $38 unit product cost is computed as follows:
| Direct materials | $ | 8 |
| Direct labor | 9 | |
| Variable manufacturing overhead | 2 | |
| Fixed manufacturing overhead ($399,000 ÷ 21,000 units) | 19 | |
| Absorption costing unit product cost | $ | 38 |
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 operations are:
| Year 1 | Year 2 | |
| Units produced | 21,000 | 21,000 |
| Units sold | 16,000 | 26,000 |
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.
