Question

Diego Company manufactures one product that is sold for $72 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 43,000 units and sold 38,000 units. A A Variable costs per unit: Manufacturing: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expense A A $ 774,000 $ 346,000 The company sold 28,000 units in the East region and 10,000 units in the West region. It determined that $170,000 of its fixed selling and administrative expense is traceable to the West region, $120,000 is traceable to the East region, and the remaining $56,000 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. 10. What would have been the company's variable costing net operating income (loss) if it had produced and sold 38,000 units? You do not need to perform any calculations to answer this question.

Answer 1

10)Total Variable cost per unit =Direct material +Direct labor + variable manufacturing overhead + Variable selling and administrative expense

                  = 22 + 14 +3 +5

                  = $ 44

Total Fixed cost = 774000 +346000= 1120000

Variable costing Net income /(loss) = Units sold [Selling price - variable cost ] -Fixed cost

                                    = 38000 [72 -44] -1120000

                                    =[38000 * 28] - 1120000

                                    = 1064000- 1120000

                                    = - 56000 Loss