Question

Diego Company manufactures one product that is sold for $70 per unit in two geographic regions-the East and West regions. The foilowing information pertains to the company's first year of operations in which it produced 53,000 units and sold 48,000 units. Variable costs per unit: Manufacturing Direct materials 21 10 Direct labor Variable manufacturing overhead Variable selling and administrative Tixed costs per year Fixed manufacturing overhead Fixed selling and administrative expense 2 4 $1,060,000 $ 557,000 The company sold 36,000 units in the East region and 12,000 units in the West region. It determined that $270,000 of its fixed selling and administrative expense is traceable to the West region, $220,000 is traceable to the East region, and the remaining $67,000 is a common fixed expense. 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. Foundational 6-8 a. What is the company's break-even point in unit sales? Break even point units

Answer 1

8)Breakeven point (units ) =Fixed cost /contribution per unit

                       = 1617000 / 33

                       = 49000 units

selling price		70
Direct material per unit	21
Direct labor per unit	10
variable manufacturing overhead per unit	2
variable selling and administrative expense per unit	4
Total variable cost		(37)
contribution per unit		33
Fixed expense
Fixed manufacturing expense	1060000
Fixed selling and administrative expense	557000
Total fixed cost		1617000

6-9)

Breakeven point (units ) =Fixed cost /contribution per unit

                       = 1617000 / 33

                       = 49000 units

Breakeven point in units will remain same even if number of units sold are reversed,the overall breakeven point will remain same .This is so because with same selling price ,variable cost per unit and fixed cost across both region ,the breakeven point will not be affected .

6-10)At breakeven point ,There is no profit no loss .

since actual Number of units sold (48000 unis) is less than breakeven point unit sales (49000 units )by 1000 units ,It means there will be a loss of 1000 units :-1000*33 = $ - 33000 . [Fixed cost is not relevant as it remains constant ]

Other calculation to check work :

Variable costing net income /(loss) =[Unit sold *contribution per unit ] -fixed cost

                     = [48000*33] - 1617000

                     = 1584000- 1617000

                    = - 33000 Loss