Hanks Company produces a single product. Operating data for the company and its absorption costing income statements for the last two years are presented below:
|
|
Year 1 |
Year 2 |
|
Units in beginning inventory |
0 |
1,000 |
|
Units produced |
9,000 |
9,000 |
|
Units sold |
8,000 |
10,000 |
|
|
Year 1 |
Year 2 |
|
Sales |
$80,000 |
$100,000 |
|
Less cost of goods sold: |
|
|
|
Beginning inventory |
0 |
6,000 |
|
Add cost of goods manufactured |
54,000 |
54,000 |
|
Goods available for sale |
54,000 |
60,000 |
|
Less ending inventory |
6,000 |
0 |
|
Cost of goods sold |
48,000 |
60,000 |
|
Gross margin |
32,000 |
40,000 |
|
Less selling & admin. expenses |
28,000 |
30,000 |
|
Net operating income |
$ 4,000 |
$ 10,000 |
Variable manufacturing costs are $4 per unit. Fixed factory overhead totals $18,000 in each year. This overhead was applied at a rate of $2 per unit. Variable selling and administrative expenses were $1 per unit sold. Required:
a. What was the unit product cost in each year under variable costing?
b. Prepare new income statements for each year using variable costing.
c. Reconcile the absorption costing and variable costing net operating income for each year.