Question

Fuided Example connec Hough Company manufactures and sells a single product. A partially completed schedule of the company's total and per unit costs over a relevant range of 80,000 to 120,000 units produced and sold each year is given below: Units produced and sold 80,000 100,000 120,000 $240,000 320,000 $560,000 ? ? ? Total costs: Variable costs Fixed costs Total costs Cost per unit: Variable cost Fixed cost Total cost per unit ? ? 2 ? ? ? ? ? ? ? ? Required: 1. Complete the schedule of the company's total and unit costs. 2. Assume that the company produces and sells 110,000 units during the year at the selling price of $6.50 per unit. Prepare a contribution format income statement for the year.

Answer 1

Ans 1.
Hough Company
Particulars	Per unit	Units Produced and Sold
Units		80,000	100,000	120,000
Total Cost
Variable cost	$                   3	$         240,000	$          300,000	$            360,000
Fixed costs		$         320,000	$          320,000	$            320,000
Total Costs		$        560,000	$          620,000	$            680,000
Cost per unit
Variable cost		$               3.00	$                3.00	$                  3.00
Fixed costs		$               4.00	$                3.20	$                  2.67
Total Cost per unit		$               7.00	$                6.20	$                  5.67

  

Ans 2.
Contribution Format Income Statement	Per unit	Total Amt $
Units Produced & Sold		110,000
Sales Revenue	$              6.50	$         715,000
Less Variable cost	$                   3	$         330,000
Contribution Margin	$              3.50	$         385,000
Less: Fixed costs		$         320,000
Net Operating Income		$           65,000

Second Part :
Ans 1.
Traditional Income Statement
Particulars	Amt $	Amt $
Sales Revenue		$         750,000
Cost of Goods Sold
Opening Stock :Merchandise Inventory	$          65,000
Add: Purchase of Merchandise Inventory	$       295,000
Less: Ending Stock Merchandise Inventory	$        (85,000)
Cost of Goods Sold		$         275,000
Gross Profit		$         475,000
Operating Expenses
Selling Expenses	$       185,000
Admin Expenses	$       122,500
Total Operating Expenses		$         307,500
Net Operating Income/(Loss)		$         167,500

Ans 2.
Contribution Format Income Statement	Per unit	Total Amt $
Units Produced & Sold		1,500
Sales Revenue	$               500	$         750,000
Variable costs :
Variable cost of Production	$         183.33	$         275,000
Variable Selling cost	$                 40	$           60,000
Variable Admin cost	$                 15	$           22,500
Total Variable cost	$         238.33	$         357,500
Contribution Margin		$         392,500
Fixed Exppenses
Fixed Selling Expenses		$         125,000
Fixed Admin Expenses		$         100,000
Total Fixed Expense		$         225,000
Net Operating Income/(Loss)		$         167,500