Question

# 1.) A firm expects to sell 25,700 units of its product at \$11.70 per unit and...

1.) A firm expects to sell 25,700 units of its product at \$11.70 per unit and to incur variable costs per unit of \$6.70. Total fixed costs are \$77,000. The total contribution margin is:

2.) A manufacturer reports the following information below for its first three years in operation.

 Year 1 Year 2 Year 3 Income under variable costing \$ 90,000 \$ 123,000 \$ 129,000 Beginning inventory (units) 0 940 570 Ending inventory (units) 940 570 0 Fixed manufacturing overhead per unit \$ 15.00 \$ 15.00 \$ 15.00

Income for year 2 using absorption costing is:

1.

A firm expects to sell 25,700 units of its product at \$11.70 per unit and to incur variable costs per unit of \$6.70. Total fixed costs are \$77,000.

Contribution margin per unit = Selling price per unit – Variable cost per unit

= 11.70 - 6.70

= \$5

The total contribution margin = Number of units sold x Contribution margin per unit

= 25,700 x 5

= \$128,500

2.

Net operating income as per variable costing = \$123,000

- Fixed manufacturing overhead element in beginning inventory = 940 x 15 = - \$14,100

+ Fixed manufacturing overhead element in ending inventory = 570 x 15 = \$8,550

Hence, net operating income as per absorption costing = 123,000 - 14,100 + 8,550

= \$117,450

Income for year 2 using absorption costing is \$117,450

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