Question

The Foundational 15 (L06-1, LO6-2, LO6-3, LO6-4, LO6-5) [The following information applies to the questions displayed below.) Diego Company manufactures one product that is sold for $71 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 54,000 units and sold 49,000 units. $ $ Variable costs 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 22 12 3 5 $ $ 864,000 $ 586,000 The company sold 36,000 units in the East region and 13,000 units in the West region. It determined that $280,000 of its fixed selling and administrative expense is traceable to the West region, $230,000 is traceable to the East region, and the remaining $76,000 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. Foundational 6-7 7. What is the amount of the difference between the variable costing and absorption costing net operating incomes (losses)? Difference of Variable Costing and Absorption Costing Net Operating Income (Losses) Variable costing net operating income (loss) Absorption costing net operating income (loss)

Answer 1

Answer

Total variable cost = 22 + 12 + 3 + 5 = $42

Selling price = $72

Variable costing income statement

Particulars	$
Sales revenue (49,000 × 71)	3,479,000
Less variable cost (49,000 × 71)	2,058,000
Contribution margin	1,421,000
Less fixed manufacturing overhead	864,000
Fixed selling and administrative expense	586,000
Net operating loss	(29,000)

Net loss $29,000 under variable costing.

Production is 54,000 units

Sales is 49,000 units

Fixed manufacturing overhead per unit

= 864,000 / 54,000 = $16

Fixed manufacturing overhead under absorption costing

= (49,000 × 16) = 784,000

Absorption costing income statement

Particulars	$	$
Sales (49,000 × 71)		3,479,000
Less cost of goods sold:
Direct material (49,000 × 22)	1,078,000
Direct labour (49,000 × 12)	588,000
Variable manufacturing overhead (49,000 × 3)	147,000
Fixed manufacturing overhead (49,000 × 16)	784,000
Cost of goods sold		2,597,000
Gross profit		882,000
Less variable selling and administrative expenses (49,000 × 5)	245,000
Fixed selling and administrative expense	586,000
Total selling and administrative expenses		831,000
Net operating income profit		51,000

Reconciliation factor = Ending inventory × fixed manufacturing overhead per unit

Reconciliation factor = 5,000 × 16 = $80,000

Difference of variable costing and absorption costing net operating income (loss)
Variable costing net operating loss	(29,000)
Add reconciliation factor	80,000
Absorption costing net operating income	51,000

The above are the detailed calculations and supporting works of different between abortion costing and variable costing income.

If YOU are like the answer please upvote.