Question

3.       Contribution income statement and Cost-volume-profit analysis

Apron Manufacturing uses an absorption costing system. The company's income statement for 2019 is as follows:

INCOME STATEMENT

for the year ending 31 December 2019

Sales	19,000	units @	$33		$627,000
Cost of goods sold:-
Finished goods inventory, 1 Jan				$0
Cost of goods manufactured	20,000	units @	$15	$300,000
Goods available for sale			=	$300,000
Finished goods inventory, 31 Dec	1,000	units @	$15	- $15,000
Cost of goods sold				=	$285,000
					$342,000
Operating expenses:
Selling				96,000
Administrative				37,500
Total selling and administrative					$133,500
Income					$208,500

The following additional information is available.

Variable costs per unit

Direct materials	$3.75
Direct labour	$6.00
Manufacturing overhead	$2.25
Selling expense	$1.50

Fixed costs for the year

Manufacturing overhead	$60,000
Selling	$67,500
Administrative	$37,500

Required:

Input the above information, then answer the questions below.

(a)    Re-write the income statement in variable costing (behavioural) format.

(b)    Using the information calculated in (a), calculate how many units the company would have to sell in order to break even.

Answer 1

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