Question

Read the following information and answer questions that follow The following information is available in Boago's books on December 31, 2012 PULAS Opening inventory 5 000 Bricks made during the year 9,000 Bricks sold during the year 12,000 Closing inventory 2 000 Selling price 0 Manufacturing costs Variable costs Direct material/brick 3 Direct Labor hour used to make one brick 2 Variable manufacturing overhead 1 50 000 Fixed manufacturing overheads per year Selling and administrative costs: Commission paid for selling one brick 1 50 000 Fixed selling and administration costs per year

Answer 1

absorption costing consider fixed manufacturing overhead as product cost.

product cost absorption costing

	product cost
direct material	3
direct labor	2
variable overhead	1
fixed overhead	5.56	[50000/90000]

Total= 3+2+1+5.56

=11.56$

2. variable costing considers fixed manufacturing overhead as period cost.

sales	120000	[12000*10]
Less:variable costs
direct material	36000	12000*3]
direct labor	24000	[12000*2]
variable overhead	12000	[12000*1]
variable selling and administrative expense	12000	[12000*1]
contribution margin	36000	[120000-84000]
Less: Fixed cost
Fixed overhead	50000
Fixed selling and administrative expense	50000
Net Income(Loss)	(64000)	[36000-50000-50000]

2.

a. profit = sales-costs

=(P10*10000) - (P5*10000)-P100000

=100000-50000-100000

=-50000

LOSS = 50000

B. (P10*15000) - (P5*15000)-100000

=150000-75000-100000

=-25000

LOSS =25000

c.break even = fixed cost / contribution margin per unit

=100000 / sales- variable cost

=100000/ 10-5

=100000/5

=20000units should be sold to break even

break even = no profit no loss

d.BEP in sales

= fixed cost / contribution margin ratio

CM RATIO = CONTRIBUTION MARGIN / SALES

=5/10

=50%

100000/50%

200000P

E.target profit+ fixed cost / contribution margin per unit

=30000+100000 / 5

=26000units