Question

Following is information pertaining to Dayton Company’s operations of the first and second quarter of 2013.
   Quarter
First Second
Units
Production 70,000 60,000
Sales 60,000 70,000
Expected activity level 65,000 65,000
Unit selling price         $ 75.00          $    75.00
Unit variable costs
Direct material         $     34.50                       $     34.50
Direct labor 16.50    16.50
Factory overhead     7.80      7.80
Selling and administrative     5.70      5.70
Fixed costs
Factory overhead         $ 195,000             $ 195,000    
Selling and administrative               42,800 42,800

Additional Information:

 There were no finished goods at January 1, 2013.
 Dayton Company writes off any quarterly underapplied or overapplied overhead as an adjustment to Cost of Goods Sold.
 Dayton Company’s income tax rate is 35 percent.

a.)   Prepare a variable costing income statement for each quarter.

b.)   Calculate each of the following for 2013 if 260,000 units were produced and sold:

1. Unit contribution margin
2. Contribution margin ratio
3. Total contribution margin
4. Net income
5. Degree of operating leverage. (Round to the nearest tenth of a percent.)
6. Annual break-even unit sales volume. (Round to the nearest dollar.)
7. Annual break-even dollar sales volume. (Round to the nearest dollar.)
8. Annual margin of safety as a percentage. (Round to the nearest whole percent.)
9. Annual margin of safety in units.

Answer 1

As per policy, only four parts a question are allowed to answer, so answering :

a) Variable costing income statement:
		quarter 1	quarter 2
Production		70000	60000
Sales		60000	70000
Sales	75	4500000	5250000
Less: Variable costs:
DM	34.5	2070000	2415000
DL	16.5	990000	1155000
F O/H	7.8	468000	546000
S & Adm	5.7	342000	399000
Total Variable costs	64.5	3870000	4515000
Contribution	10.5	630000	735000
Less: Fixed costs:
F O/H		195000	195000
S & Adm		42800	42800
Total Fixed Costs		237800	237800
Net Income		392200	497200
b)
1. Unit contribution margin $10.50
2. Unit contribution margin	10.5/75	0.14
3. Total contribution margin	260000*10.50	2730000
4. Net Income	2730000 - 951200	1778800