Question

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 Total costs: Variable costs $240,000 ? ? Fixed costs 320,000 ? ? Total costs $560,000 2 ? Cost per unit: Variable cost ? ? ? Fixed cost ? ? 2 Total cost per unit 2 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. الله الله الهم (L04, L06]

Answer 1

Question No. 1) Hough Company manufactures

1.

Units Produced and Sold
	80000	100000	120000
Total Costs
Variable Costs	$240000	$300000	$360000
Fixed Costs	$320000	$320000	$320000
Total Costs	$560000	$620000	$680000
Cost per unit:
Variable Cost (Variable Cost /Units Produced)	$3	$3	$3
Fixed Cost (Fixed Costs/Units Produced)	$4	$3.20	$2.67
Total Cost per unit	$7	$6.20	$5.67

Note: Fixed costs are same at all levels from 80000 to 120000 units and variable cost per unit is always fixed.

Variable cost per unit remains same irrespective of number of units .Per unit Variable Cost = $240000/80000 = $3

Fixed Cost remains same in Totality irrespective of units produced , it will remain constant at $320000. There fore Fixed cost per unit will vary with respect to number of units produced.

2. Contribution Format Income Statement

Particulars	Amount
Revenue(110000 units x $6.50)	$715000
Variable Cost (110000 units x $3)	$330000
Contribution Margin	$385000
Fixed Costs	$320000
Net Income	$65000

Question No.2) Maui Mike

1.Traditional Income Statement for the quarter ended May 31

Particulars	Amount
Sales	$750000
Less: Cost of goods sold	$275000
Gross Margin	$475000
Selling and administrative expenses
Variable selling expenses	$60000
Variable administrative expenses	$22500
Fixed selling expense	$125000
Fixed administrative expenses	$100000
Total selling and administrative expenses	$307500
Net Income ( Gross Margin - Total selling and administrative expenses)	$167500

Working Note:

1. No of units sold = Sales Revenue / Selling price per Unit = 750000/500 = 1500

2. Variable selling expenses = No of units sold x Variable selling expenses per Unit = 1500 *40 = 60,000

3. Variable administrative expenses =No of units sold x Variable administrative expenses per Unit = 1500 * 15 = 22500

4.Calculation of Cost of Goods Sold

Merchandise inventory, beginning balance	65,000
Add: Merchandise purchases	295,000
Less: Merchandise inventory, ending balance	85,000
Cost of goods sold	275,000

2.Contribution Format Income Statement for the quarter ended May 31

Particulars		Amount
Sales		$750000
Variable expenses
Cost of goods sold	$275000
Variable selling expenses	$60000
Variable administrative expenses	$22500
Total variable expenses		$357500
Contribution Margin		$392500
Fixed Expenses
Fixed selling expense	$125000
Fixed administrative expenses	$100000
Total fixed Expenses		$225000
Net Income		$167500

Contribution Margin = Sales - Total variable expenses = $750000 - $357500 = $392500

Net Income = Contribution Margin - Total fixed Expenses = $392500 - $225000 = $167500

Kindly give a positive rating if you are satisfied with the answer.