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.
11. |
What would have been the company’s absorption costing net operating income (loss) if it had produced and sold 39,000 units?
Profit Will= By=
Profit Will= By= |
11 | INCOME STATEMENT | |||||||||
East | West | Total | ||||||||
A | Sales in units | 10000 | 29000 | 39000 | ||||||
B | Sales Price per unit | $73 | $73 | |||||||
C=A*B | Sales amount (dollars) | $730,000 | $2,117,000 | $ 2,847,000 | ||||||
Variable Costs: | ||||||||||
D=$23*A | Direct materials | $ 230,000 | $ 667,000 | $ 897,000 | ||||||
E=$16*A | Direct labor | $ 160,000 | $ 464,000 | $ 624,000 | ||||||
F=$2*A | Variable Manufacturing overhead | $ 20,000 | $ 58,000 | $ 78,000 | ||||||
G=$4*A | Variable selling & admin. Expenses | $ 40,000 | $ 116,000 | $ 156,000 | ||||||
H=D+E+F+G | Total Variable costs | $ 450,000 | $ 1,305,000 | $ 1,755,000 | ||||||
I=C-H | Contribution Margin | $280,000 | $812,000 | $1,092,000 | ||||||
J | Fixed manufacturing overhead | $748,000 | ||||||||
K | Fixed selling & admin.expenses | $130,000 | $180,000 | $400,000 | ||||||
L=I-J-K | Net Operrating Income/(Loss) | ($56,000) | ||||||||
14 | Profit After Dropping West Region | |||||||||
INCOME STATEMENT | ||||||||||
East | West | Total | ||||||||
A | Sales in units | 10500 | 0 | 10500 | (10000*1.05) | |||||
B | Sales Price per unit | $73 | ||||||||
C=A*B | Sales amount (dollars) | $766,500 | $0 | $ 766,500 | ||||||
Variable Costs: | ||||||||||
D=$23*A | Direct materials | $ 241,500 | $ - | $ 241,500 | ||||||
E=$16*A | Direct labor | $ 168,000 | $ - | $ 168,000 | ||||||
F=$2*A | Variable Manufacturing overhead | $ 21,000 | $ - | $ 21,000 | ||||||
G=$4*A | Variable selling & admin. Expenses | $ 42,000 | $ - | $ 42,000 | ||||||
H=D+E+F+G | Total Variable costs | $ 472,500 | $ - | $ 472,500 | ||||||
I=C-H | Contribution Margin | $294,000 | $0 | $294,000 | ||||||
J | Fixed manufacturing overhead | $748,000 | ||||||||
K | Fixed selling & admin.expenses | $130,000 | $0 | $220,000 | (400000-180000) | |||||
L=I-J-K | Net Operrating Income/(Loss) | ($674,000) | ||||||||
Profit will reduce by | $618,000 | (674000-56000) | ||||||||
15 | Profit after Advertisement Campaign | |||||||||
INCOME STATEMENT | ||||||||||
East | West | Total | ||||||||
A | Sales in units | 10000 | 34800 | 44800 | (Sales in west=29000*1.2) | |||||
B | Sales Price per unit | $73 | $73 | |||||||
C=A*B | Sales amount (dollars) | $730,000 | $2,540,400 | $ 3,270,400 | ||||||
Variable Costs: | ||||||||||
D=$23*A | Direct materials | $ 230,000 | $ 800,400 | $ 1,030,400 | ||||||
E=$16*A | Direct labor | $ 160,000 | $ 556,800 | $ 716,800 | ||||||
F=$2*A | Variable Manufacturing overhead | $ 20,000 | $ 69,600 | $ 89,600 | ||||||
G=$4*A | Variable selling & admin. Expenses | $ 40,000 | $ 139,200 | $ 179,200 | ||||||
H=D+E+F+G | Total Variable costs | $ 450,000 | $ 1,566,000 | $ 2,016,000 | ||||||
I=C-H | Contribution Margin | $280,000 | $974,400 | $1,254,400 | ||||||
J | Fixed manufacturing overhead | $748,000 | ||||||||
K | Fixed selling & admin.expenses | $130,000 | $214,000 | $434,000 | (Fixed selling expense of West=180000+34000) | |||||
L=I-J-K | Net Operrating Income/(Loss) | $72,400 | ||||||||
Profit will Increase by | $128,400 | (72400+56000) | ||||||||
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