Question

24-10. Break-even and cost-volume-profit analysls; direct costing. The tollowing data relate to a year's budgeted activity for Crosby Corporation, which manufactures one product Beginning inventory. Production. Available for sale... 30,000 units 120,000 150,000 units 110.000 40.000 units Ending inventory $5.00 per unit Sales price..g Variable manufacturing cost. Variable marketing cost 1.00 200 .25 65 manufacturing cost (based on 100,000 units - 치xed marketing cost (based on 100,000 units) special remains order is received tor 10,000 units to be used in an unrelated market. The total fixed Required: changed within the relevant range of 25,000 units to total capacity of 160,000units rojected annual break-even sales in unlts. Projected operating incot operating income for the year (a) unde direct costing (b) arging all variances to Cost of Gocds Sold. (Continued)

Answer 1

Sales price per unit = $5
Variable manufacturing cost = $1
Variable marketing cost = $2
Fixed manufacturing cost (100,00 units) = $0.25
Fixed marketing cost (100,00 units) = $0.55
Total V. Cost per unit = $1+$2 = $3
Total Fixed Cost per unit = $0.25+$0.55 = $0.80
Total variable cost for 10,000 units = $3 x 10,000 = $30,000
Total Fixed cost for 10,000 units = $0.80 x 10,000 = $8,000
BEP (Sales) = $0.8/($5-$3) = $0.80/$2 = 4,000 units
Total Operating income for the year = Total Sales - Total cost
Total Sales = 110,000 units x $5 + $50,000
= $550,000+$50,000 = $600,000
Variable cost = 110,000 x $3 + $30,000 units
= $330,000+$30000 = $360,000
Fixed cost = 110,000 x $0.80 + $8,000
= $88,000+$8,000 = $96,000
Total Cost = $360,000+$96,000 = $456,000
a. Operating profit/income under direct costing = $600,000-$360,000 = $240,000
b. Operating profit/income under absorption costing = $600,000-$456,000 = $144,000