Question

Parker 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 72,000 to 135,000 units produced and sold each year is given below: Required: 1. Complete the schedule of the company's total and unit costs. (Round "Cost per unit" answers to 2 decimal places.) Units Produced and Sold 72,000 90,000 135,000 $ Total costs: Variable costs Fixed costs Total costs Cost per unit: Variable cost Fixed cost Total cost per unit 147,600 432,000 579,600 $ 2. Assume that the company produces and sells 120,000 units during the year at a selling price of $6.00 per unit. Prepare a contribution format income statement for the year. < Prev 20 of 20 !!! Next

Answer 1

1. Completing the Schedule of the Company's Total and Unit Costs:-

	Units	Produced	and Sold
	72,000	90,000	135,000
Total Costs:-
Variable Costs	$147,600	$184,500	$276,750
Fixed Costs	$432,000	$432,000	$432,000
Total Cost	$579,600	$616,500	$708,750
Cost per unit:-
Variable Cost	$2.05	$2.05	$2.05
Fixed Cost	$6	$4.80	$3.20
Total Cost per unit	$8.05	$6.85	$5.25

Working Note:-

Variable Cost per unit=(Total Variable Costs/Total Units produced and Sold)

=($147,600/72,000 units)

=$2.05

Variable Costs=(Variable Cost per unit× total units Produced and Sold)

=($2.05×90,000 units)

=$184,500

or

=($2.05×135,000 units)

=$276,750

Fixed Cost per unit=(Total Fixed Costs/ Total units produced and Sold)

=($432,000/72,000 units)

=$6

Or

=($432,000/90,000 units)

=$4.80

Or

=($432,000/135,000 units)

=$3.20

Fixed Costs remains the same at each level of production but Fixed Cost per unit decreases as level of production will Increase.

2. Preparing Contribution Format Income Statement:-

Parker Company

Contribution Format Income Statement

For the Year Ended

Accounts	Amount	Amount
Sales Revenue ($6*120,000 units)	$720,000
Less:- Variable Costs ($2.05*120,000 units)	(246,000)
Contribution Margin		$474,000
Less:- Fixed Costs		(432,000)
Net Income		$42,000