Question

1) what is the amount of the difference between the variable costing and absorption costing net operating incomes (losses)?

Diego Company manufactures one product that is sold for $76 per unit in two geographic regions-the East and West regions. The
-Book 7. What is the amount of the difference between the variable costing and absorption costing net operating incomes (loss

2) Whats the company's break-even point in unit sales?
Diego Company manufactures one product that is sold for $76 per unit in two geographic regions-the East and West regions. The
a. What is the companys break-even point in unit sales? Break even point units
is the above or below the actual unit sales?



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Answer #1

7)

Difference of variable costing and Absorption costing net operating income /(losses)
Variable costing Net operating income /(loss) -72000
Add:Fixed manufacturing overhead deferred in ending inventory 80000
Absorption costing net income 8000

#Variable costing net income :

Contribution = {units sold * (selling price- total variable cost) }

         = {54000* (76 - [23+15+3+3] ) }

         = { 54000 * (76 - 44)]

        ={ 54000* 32}

          = 1728000

Total fixed cost = 1160000+640000= 1800000

Net income under variable costing = 1728000-1800000 = -72000

Absorption costing:

Since units produced is greater than units sold ,some of the fixed manufacturing overhead which is a part of product cost is deferred in ending inventory.

Fixed manufacturing per unit = 1160000/58000 = $20 per unit

ending inventory = 58000-54000 = 4000 units

Fixed manufacturing overhead deferred= 4000*20 = 80000

2)Total variable cost per unit=23+15+3+3 = 44

contribution per unit =selling price --variable cost

                    = 76 -44 = 32

Breakeven point in units = Fixed cost / contribution per unit

                 = 1800000 / 32

                 = 56250 units

It is above the actual units sales of 54000 units

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