Question

A Company manufactures one product that is sold for $79 per unit. The following information pertains to the company's first year of operations in which I produced 50,000 units and sold 45,000 units. Variable costs per unit: Manufacturing Direct materials $ 29 Direct labour 16 Variable manufacturing overhead 2 Variable selling and administrative 4 Fixed costs per year: Fixed manufacturing overhead 800,000 Fixed selling and administrative expenses $ 516,000 1. What is the company's total contribution margin under variable costing? What is the company's net operating income (loss) under variable costing? 3. What is the company's total gross margin under absorption costing? 4. What is the company's net operating income (loss) under absorption costing? 5. What is the amount of the difference between the variable costing and absorption costing net operating incomes (losses)? 2. Difference of variable costing and absorption costing net operating incomes Variable costing net operating income (loss) хскххх Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing xox0X Absorption costing net operating income (loss) xx000XX 6. What is the company's break-even point in unit sales? 7. What would have been the company's variable costing net operating income (loss) if it had produced and sold 45,000 units? What would have been the company's absorption costing net operating income (loss) if it had 8. produced and sold 45,000 units?

Answer 1

1.contribution margin = sales revenues- variable costs

= (79-29-16-2-4)*45,000

=$1,260,000

2.net operating income = contribution margin- fixed costs

= 1,260,000 - 800,000-516,000

=$(56,000)

3.Gross Margin = Sales Revenue - cost of goods sold

= (79-29-16-2)*45,000 -800,000*45,000/50,000

=$720,000

4. Operating income = gross margin - selling expenses

= 720,000 - 4*45,000 - 516,000

=$24,000

5.Difference =$80,000

Fixed manufacturing overhead cost deferred = 800,000*5,000/50000 =$80,000

6.Break even point in units = fixed costs/contribution margin per unit

= 1316,000/28

= 47,000 units

7.it would have been same I.e. $(24,000)

8.same as variable costing I.e. $(24,000)