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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