Question

Required information The Foundational 15 [LO6-1, LO6-2, LO6-3, LO6-4, LO6-5 [The following information applies to the questions displayed below.] Diego Company manufactures one product that is sold for $76 per unit in two geographic regions-the East and West regions. The following information pertains to the company's first year of operations in which it produced 47,000 units and sold 42,000 units. Variable costs per unit: Manufacturing: Direct materials 26 Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expense 987,000 475,000 The company sold 32,000 units in the East region and 10,000 units in the West region. It determined that $210,000 of its fixed selling and administrative expense is traceable to the West region, $160,000 is traceable to the East region, and the remaining $105,000 is a common fixed expense. The company will continue to incur the total amount of its fixed manufacturing overhead costs as long as it continues to produce any amount of its only product. Foundational 6-1 Required 1. What is the unit product cost under variable costing? Unit product cost 2. What is the unit product cost under absorption costing? t product cost 3. What is the company's total contribution margin under variable costing?

DO NOT LEAVE PARTIAL ANSWER.

Answer 1

Answer 1.

Under Variable Costing:

Unit Product Cost = Direct Materials + Direct Labor + Variable Manufacturing Overhead
Unit Product Cost = $26 + $10 + $2
Unit Product Cost = $38

Answer 2.

Under Absorption Costing:

Unit Product Cost = Direct Materials + Direct Labor + Variable Manufacturing Overhead + Fixed Manufacturing Overhead per unit produced
Unit Product Cost = $26 + $10 + $2 + $987,000 / 47,000
Unit Product Cost = $59

Answer 3.

Contribution Margin per unit = Selling Price - Variable Unit Product Cost - Variable Selling and Administrative per unit
Contribution Margin per unit = $76 - $38 - $4
Contribution Margin per unit = $34

Total Contribution Margin = Contribution Margin per unit * Number of units sold
Total Contribution Margin = $34 * 42,000
Total Contribution Margin = $1,428,000

Answer 4.

Net Operating Income (loss) = Total Contribution Margin - Fixed Manufacturing Overhead - Fixed Selling and Administrative
Net Operating Income (loss) = $1,428,000 - $987,000 - $475,000
Net Operating Income (loss) = -$34,000

Answer 5.

Sales = $76 * 42,000
Sales = $3,192,000

Cost of Goods Sold = $59 * 42,000
Cost of Goods Sold = $2,478,000

Gross Margin = Sales - Cost of Goods Sold
Gross Margin = $3,192,000 - $2,478,000
Gross Margin = $714,000

Answer 6.

Selling and Administrative Expense = Variable Selling and Administrative Expense + Fixed Selling and Administrative Expense
Selling and Administrative Expense = $4 * 42,000 + $475,000
Selling and Administrative Expense = $643,000

Net Operating Income (loss) = Gross Margin - Selling and Administrative Expense
Net Operating Income (loss) = $714,000 - $643,000
Net Operating Income (loss) = $71,000

Answer 2

as follows Compute unit cost under marginal and absorption costing Variable Absorption Amount (S) Amount (S) $26.00 Particulars Direct material Direct labour Variable manufacturing overhead Fixed manufacturing overhead Cost per unit $26.00 S10.00 $2.00 $10.00 $2.00 $21.00 $59.00 $38.00 Therefore, the product cost per unit is $38 under variable costing. 1. Therefore, the product cost per unit is $59 under absorption costing. 2. Compute the total contribution margin and operating income as follows: Variable Absorption Amount (S) Amount (S) S3,192,000 $3,192,000| Particulars Sales Less: Cost of goods sold Variable ($38x42,000 units) Absorption ($59x42,000 units) Gross contribution margin Gross margin Less: selling and administrative expenses S1,596,000 $2,478,000 $1,596,000 $714,000 $168,000 $475,000 $987,000 -$34,000 $168,000 $475,000 Variable Fixed Less: Fixed manufacturing overhead Net operating income $71,000 3. Therefore, the total contribution margin under variable costing is $1,428,000 (S1,596,000-S168,000) operating loss under variable costing is -$34,000. 4. Therefore, the net 5. Therefore, the total gross margin under absorption costing is S714,000. 6. Therefore, the net operating income under absorption costing is $71,000.

Compute the difference of net operating income under marginal costing and absorption costing as follows Difference of variable costing and absorption costing net operating income (losses) Variable costing net operating income Absorption costing net operating loss Difference due to closing stock value Amount (S) $71,000 -$34,000 $105,000 7. Therefore, the amount of difference between absorption costing and marginal costing is $105,000. Compute the breakeven sales as follows: Total fixed cost Break even sale unit = Contribution per unit $987,000 $475,000 $76-($38+$4) = 43,000 units 8(a) Therefore, the breakeven sale is 43,000 units 8(b) Break even sale is above the actual sale by 1,000 units 9. The contribution margin will not change if sale units not changed irrespective of change of location of sales, hence the breakeven sale will be same 43,000 units.

10. Compute company's nete follows: operating income (loss) if it had prođuced 42,000 units as Variable Amount (S) S3,192,000 Particulars Sales Less: Variable cost of goods sold ($38x42,000 units)Si,596,000 Gross contribution margin Less: selling and administrative expenses S1,596,000 $168,000 $475,000 $987,000 -S34,000 Variable Fixed Less: Fixed manufacturing overhead Net operating income Therefore, the company's variable costing net operating loss would be $34,000.

Compute cost per unit under absorption costing as follows Absorption Amount (S) Particulars Direct material Direct labour Variable manufacturing overhead Fixed manufacturing overhead ($987,000/42,000 units) Cost per unit $26.00 $10.00 $2.00 $23.50 $61.50 Compute company's absorption costing net operating income (loss) at production and sale of 42,000 units as follows: Absorption Amount (S) S3,192,000 Particulars Sales Less: Cost of goods sold Absorption ($61.5x42,000 units) Gross margin Less: selling and administrative expenses $2,583,000 $609,000 $168,000 $475,000 -$34,000 Variable Fixed Net operating income 11 Therefore, the company's absorption costing net operating loss is $34,000 if it had produced and sold 42,000 units. 12. The net operating income of second year of operation will be under absorption costing will be lower, due to beginning stock value under absorption costing will consist of fixed cost not like variable costing

13. Prepare the contribution format segment income statement that includes a total column and columns for the east and west regions Total Company Income Statement East West Sales S3,192,000 Total (42,000 $76) (32,000 $76) (10,000x$76) $2,432,000 East $760,000 West Less: Variable cost $1,092,000 $420,000 $832,000 $260,000 Direct material $320,000 $100,000 $64,000 $20,000 S40,000 $128,000 Direct labor $84,000 $168,000 Variable manufacturing overhead Vaariable selling and administrative Total Cotribution $1,428,000 $1,088,000 $340,000 14. Compute the west segment profitability analysis as follows: Particulars East Sales $121,600 (32,000x0.05x$76) East Less: Variable cost Direct material $41,600 $16,000 $3,200 $6,400 $54,400 S40,000 $14,400 Direct labor Variable manufacturing overhead Vaariable selling and administrative Total additional contribution Less: forgone contribution margin Increase in total contribution Therefore, the west division drop will cause increase in total contribution of $14,400

15 Compute the advertising campaign proposal as follows: Particulars West Sales $121,600 (10,000x0.2 $76) West Less: Variable cost Direct material $52,000 $20,000 $4,000 Direct labor Variable manufacturing overhead Vaariable selling and administrative Total additional contribution Less: advertising campaign expenses Increase in total contribution $8,000 $37,600 S37,000 $600 The advertising campaign would generate contribution of S600.