Question

The following information applies to the questions displayed below.] Diego Company manufactures one product that is sold for $73 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 44,000 units and sold 39,000 units. Variable costs per unit: Manufacturing: Direct materials $ 23 Direct labor $ 16 Variable manufacturing overhead $ 2 Variable selling and administrative $ 4 Fixed costs per year: Fixed manufacturing overhead $ 748,000 Fixed selling and administrative expenses $ 400,000 The company sold 29,000 units in the East region and 10,000 units in the West region. It determined that $180,000 of its fixed selling and administrative expenses is traceable to the West region, $130,000 is traceable to the East region, and the remaining $90,000 is a common fixed cost. 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.

Required:
1.	What is the unit product cost under variable costing?

$41
  

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

$58

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

$1,092,000

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

$56,000

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

$585,000

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

net operating income $ 29,000
  

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

  
Variable Costing Net Operating Income (Loss) =

Wich one of these and equals :

Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing

Add: Fixed manufacturing overhead cost released from inventory under absorption costing

Deduct: Fixed manufacturing overhead cost deferred in inventory under absorption costing

Deduct: Fixed manufacturing overhead cost released from inventory under absorption costing

Absorption costing net operating income (loss) =

8.

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

2. Is it above or below the actual sales volume?

9.	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?

10.	What would have been the company’s variable costing net operating income (loss) if it had produced and sold 39,000 units?

      

Answer 1

1
What is the unit product cost under variable costing?	41

2
What is the unit product cost under absorption costing?	58

3
What is the company’s total contribution margin under variable costing?	1,092,000

4
What is the company’s net operating income (loss) under variable costing?	(56,000)

5
What is the company’s total gross margin under absorption costing?	585,000

6
What is the company’s net operating income (loss) under absorption costing?	29,000

7
Variable Costing Net Operating Income (Loss) =	(56,000)
Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing	85,000
Absorption costing net operating income (loss) =	29,000

8
Breakeven Units	Fixed Cost/Contribution per Unit
Contribution per Unit	73-23-16-2-4	28
Fixed Cost	748000+400000	1,148,000
Breakeven Units	41,000.00

It is More than actual Sales Volume

9
It will be same as above as the Over All Fixed Cost is Same
Breakeven Units	41,000.00

10
variable costing net operating income (loss)	(56,000)

Workings:

	per Unit	Absorption	Variable
Direct materials	23	1,012,000	1,012,000
Direct labor	16	704,000	704,000
Variable manufacturing overhead	2	88,000	88,000
Fixed Manufactring Overhead		748,000
		2,552,000	1,804,000
Number of Units		44,000	44,000
Cost per Unit		58	41

	Absorption	Variable
Sales	2,847,000	2,847,000
Less: Cost of Goods Sold	2,262,000	1,599,000
Variable Selling and Administrative Expenses		156,000
Contribution Margin	585,000	1,092,000
Variable Selling and Administrative Expenses	156,000
Fixed Manufactring Expesnes		748,000
Fixed Selling and Administrative Expenses	400,000	400,000
Net operating income (loss)	29,000	(56,000)

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