Question

Diego Company manufactures one product that is sold for $77 per unit in two geographic regions—the East and West regions. The following information pertains to the company’s first year of operations in which it produced 48,000 units and sold 43,000 units.

Variable costs per unit:
Manufacturing:
Direct materials	$	27
Direct labor	$	12
Variable manufacturing overhead	$	3
Variable selling and administrative	$	5
Fixed costs per year:
Fixed manufacturing overhead	$	864,000
Fixed selling and administrative expense	$	456,000

The company sold 33,000 units in the East region and 10,000 units in the West region. It determined that $220,000 of its fixed selling and administrative expense is traceable to the West region, $170,000 is traceable to the East region, and the remaining $66,000 is a common fixed expense. The company will continue to incur the total amount of its fixed manufacturing overhead costs as long as it continues to produce any amount of its only product.

1. What is the unit product cost under absorption costing?

2. What is the company’s total contribution margin under variable costing?​

3.. What is the company’s net operating income (loss) under variable costing?

4.What is the company’s total gross margin under absorption costing?

5.What is the company’s net operating income (loss) under absorption costing?

6.What is the amount of the difference between the variable costing and absorption costing net operating incomes (losses)?

Difference of Variable Costing and Absorption Costing Net Operating Income (Losses)
Variable costing net operating income (loss)
Absorption costing net operating income (loss)

7. a. What is the company’s break-even point in unit sales?

b. Is it above or below the actual unit sales?

8. If the sales volumes in the East and West regions had been reversed, what would be the company’s overall break-even point in unit sales
9. What would have been the company’s variable costing net operating income (loss) if it had produced and sold 43,000 units? You do not need to perform any calculations to answer this question.

10. What would have been the company’s absorption costing net operating income (loss) if it had produced and sold 43,000 units? You do not need to perform any calculations to answer this question.

11. Prepare a contribution format segmented income statement that includes a Total column and columns for the East and West regions.

Income Statement
	Total Company	East	West
	0	0	0
	0	$0	$0
	$0

Answer 1

1). Unit product cost under absorption costing:-
Total Cost = $3,311,000 - $60,000 = $3,251,000 / 43000 units = $75.60 per unit

2). Contribution margin = $1,290,000
3). Operating (loss) under variable = $ (30,000)
4). Gross margin = $731,000
5). Operating Income under absorption = $60000
6). Difference in Operating Income = $60000 - $(30000) = $90000
7). a). Breakeven point in unit sales = Fixed Cost / Cont. per unit
= $1,320,000 / $30 = 44000 units
b). Above the actual unit sales of 43000 units.
(I think from question no. 8, you can solve the remaining by yourself, just understand the above statements and solve accordingly.)