Question

Hixson Company manufactures and sells one product for $34 per unit. The company maintains no beginning or ending inventories and its relevant range of production is 20,000 units to 30,000 units. When Hixson produces and sells 25,000 units, its unit costs are as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Fixed selling expense Fixed administrative expense Sales commissions Variable administrative expense Amount Per Unit $8.00 $5.00 $1.00 $6.00 $3.50 $2.50 $4.00 $1.00 Required: 1. For financial accounting purposes, what is the total amount of product costs incurred to make 25,000 units? What is the total amount of period costs incurred to sell 25,000 units? 2. If 24,000 units are produced, what is the variable manufacturing cost per unit produced? What is the average fixed manufacturing cost per unit produced? (Round your answers to 2 decimal places.) 3. If 26,000 units are produced, what is the variable manufacturing cost per unit produced? What is the average fixed manufacturing

Answer 1

1)	Total product costs incurred					500000
	Total period costs incurred					275000
2)	Variable manufacturing cost per unit produced					14		(DM+DL+VMOH)
	Average fixed manufacturing cost per unit produced					6.25		(150000/24000)
3)	Variable manufacturing cost per unit produced					14
	Average fixed manufacturing cost per unit produced					5.77		(15000/26000)
4)	Total direct manufacturing costs incurred					351000		(DM+DL)
	Total indirect manufacturing costs incurred					177000		(VMOH*units+FMOH)
5)	Total incremental manufacturing cost incurred					14
6)	Contribution margin per unit					15		(selling price - variable cost per unit)
	Contribution margin ratio					44.1%	%
7)	Break-even point in unit sales					20000	units	(fixed cost/CM per unit)
	Break-even point in dollar sales					680000		(BEP unit *selling price per unit)
8)	Increase in net operating income					22500		(addittional units*CM per unit)
9)	Margin of safety					170000		actual sales-BEP sales)
10)	Degree of operating leverage					5

working

Working
1)	Direct materials		8	25,000	200000
	direct labor		5	25,000	125000
	VMOH		1	25,000	25000
	FMOH		6	25,000	150000
	Total product cost		20		500000	answer
	Sales commission		4	25,000	100000
	variable adm expense		1	25,000	25000
	Fixed selling expense		3.5	25,000	87500
	Fixed administrative exp		2.5	25,000	62500
	total period cost				275000	answer
10)	Contribution margin		15	25,000	375000
	total fixed expense				300000
	Net income				75000
	operating leverage = contribution/net income