Question

Diego Company manufactures one product that is sold for $73 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 56,000 units and sold 51,000 units. Variable coats per unit: Manufacturing Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Pixed costs per year. Fixed manufacturing overhead Fixed selling and administrative expense $ 784,000 $ 672.000 The company sold 38,000 units in the East region and 13,000 units in the West region. It determined that $300,000 of its fixed selling and administrative expense is traceable to the West region, $250,000 is traceable to the East region, and the remaining $122,000 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. 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? Break even point

Answer 1

Overall break even point in unit sales = Total fixed costs/Contribution margin per unit

= (784000+672000)/(73-24-16-2-3)

= 52,000 units

10.Variable costing Net operating income = 28*51000 – 1,456000

= -$28000

i.e. loss

11.Since units produced as same as units sold, Operating income will be same as under variable costing

i.e. -$28000