Question

please explain the processes and any formulas

The Foundational 15 - Chapter 6 Diego Company manufactures on product that is sold for $0 per unit in two geographic regions--the East and West recons. The following information pertains to the company's first year of operations which it produced 40,000 units and sold 35 000 units Variable costs per unit: 350000 - Sales Manufacturing Direct materials $24 Direct labor $14 Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fived manufacturing Overhead $800,000 $496,000 Fixed selling and administrative expense 52 The company sold 25,000 units in the East region and 10.000 units in the West region it determined that $250,000 of its fixed selling and administrative expense is traceable to the West region, $150,000 is traceable to the East region and the remaining $95.000 is a common fixed expense. The company will continue to incur the total amount of its fed manufacturing overhead costs as long as it continues to produce any amount of its only product Required: Answer each question independently based on the original data unless instructed otherwise. You do not need to prepare a segmented income statement until question 13 1. What is the unit product cost under variable costing: 46/CD 2. What is the unit product cost under absorption costing? What is the company's total contribution margin under variable costing? Te 4. What is the company's net operating income under variable costing? 5. What is the company's total gross margin under absorption costing? 6. What is the company's net operating income under absorption costing? 7. What is the amount of the difference between the variable costing and absorption costing net operating incomes? What is the cause of this difference? 8. What is the company's break-even point in unit sales? Is it above or below the actual unit sales? Compare the break-even point in unit sales to your answer for question and comment. 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 if it had produced and sold 35.000 units? You do not need to perform any calculations to answer this question 11. What would have been the company's absorption costing net operating income if it had produced and sold 35,000 units? You do not need to perform any calculations to answer this question 12. If the company produces 5,000 fewer units than it sells in its second year of operations, will absorption conting net operating income be higher or lower than variable costing net operating income in Year 22 why? calculations are necessary

Answer 1

1)
Direct materials	$24
Direct labor	$14
Variable manufacturing overhead	$2
Unit product cost under Variable Costing	$40
2)
Direct materials	$24
Direct labor	$14
Variable manufacturing overhead	$2
Fixed manufacturing overhead	$4
Unit product cost under Absorpotion Costing	$44
3)
Selling price per unit	$80
Less: Units product cost under variable costing	($40)
Less: Variable selling and administrarive expenses	($4)
Contribution Margin per unit under variable costing (a)	$36
Total units sold (b)	35,000
Contribution Margin under variable costing (a*b)	$1,260,000
4)
Contribution Margin under variable costing	$1,260,000
Less: Fixed Costs:
Fixed manufacturing overhead ($800,000/40,000 units * 35,000)	($800,000)
Fixed selling and administrative expenses	($496,000)
Net Operating Income under Variable Costing	($36,000)
5)
Sales Revenue (35,000 units * $80 per unit)	$2,800,000
Less: Cost of Goods Sold:
Direct materials (35,000 * $24)	($840,000)
Direct labor (35,000 * $14)	($490,000)
Variable manufacturing overheads (35,000 * $2)	($70,000)
Fixed manufacturing overheads ($800,000/40,000*35,000)	($700,000)
Gross Margin under Absorption Costing	$700,000
6)
Gross Margin	$700,000
Less: Operating Expenses:
Variable selling and administrative (35,000 * $4)	($140,000)
Fixed selling and administrative	($496,000)
Net Operating Profit (Loss) under Absorption Costing	$64,000
7)
The difference in net operating income between variable costing and absorption costing is $28,000 ($64,000 - [$36,000]).
The difference is due to considering the production units instead of sold units in fixed manufacturing overheads.

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