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 following information pertains to the company's first year of operations in which it produced 58,000 units and sold 54,000 units. Variable costs per unit: Manufacturing: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative $ Fixed costs per year: Fixed manufacturing overhead $1,160,000 Fixed selling and administrative $ 640,000 expense The company sold 40,000 units in the East region and 14,000 units in the West region. It determined that $320,000 of its fixed selling and administrative expense is traceable to the West region, $270,000 is traceable to the East region, and the remaining $50,000 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.

2) Whats the company's break-even point in unit sales?

is the above or below the actual unit sales?

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