Question

Exercise D: Cost behavior; Income statement in contribution format (Value: 12 points) The company Sunset, Inc. manufactures and sells a unique product. The following table presents total and unit costs within a relevant level of 30,000 to 50.000 units produced and sold annually. • Complete the information in the table. Units manufactured and sold 30,000 40.000 50.000 Total costs Fixed costs $ 75,000 Variable costs S 180,000 Total costs $ 255,000 Unit cost Unit Fixed Cost Unit variable cost Total unit cost • Prepare an income statement in contribution format for a production level of 45,000 units a year sold at $ 3.25 each.

Answer 1

Units manufactured and sold 30,000 30,000 40,000 50,000 Total Costs Fixed costs Variable costs Total costs 75,000 180,000 255,000 75,000 240,000 315,000 75,000 300,000 375,000 Unit cost Unit fixed cost Unit variable cost Total unit cost 2.50 6.00 8.50 1.88 6.00 7.88 1.50 6.00 7.50 Working Notes: 1) Fixed costs remain the same irrespective of the units sold 2) Variable costs (units sold x unit variable costs) Unit fixed cost at 30,000 units Fixed (75,000 / 30,000) 2.50 Variable (180,000/ 30,000) 6.00 Variable costs at 40,000 units (40,000 6) 240,000 Variable costs at 45,000 units (45,000 6) 300,000 Income Statement Sunset Inc. Contribution Income Statement Sales (45,000 $ 3.25) Variable costs (45,000 $ 6) Contribution Margin Fixed costs Net Income/(Loss) $ 146,250 (270,000) (123,750) (75,000) (198,750)