Question

Paste B I U- Cells - - A Alignment Number Conditional Format as Cell Formatting Table - Styles Styles Clipboard Font C22 1 Addison, Inc. makes a single product, an indoor fireplace. Data for last year is as follows: $420 FR 13 Selling price per fireplace | 4 Manufacturing costs: Variable per unit produced: Direct materials Direct labor Variable manufacturing overhead 9 Fixed manufacturing overhead per year 10 Selling and administrative expenses: 11 Variable per unit sold 12 Fixed per year $135 $43 $37 $210,000 $45 $190,000 14 Units in beginning inventory 15 Units produced during the year 16 Units sold during the year 5,000 4,500 18 Use the data to answer the following. 20 1. Assume the company uses variable costing: 22 Compute the unit product cost for one fireplace 23 24 Prepare a contribution margin income statement for the year ... Sheet1 ... +

Answer 1

1. Using Variable costing :-

i). Unit Product cost for one fire place : 215

Calculation:

unit product cost using variable costing.

Direct materials	135
Direct Labor	43
Variable Manufacturing OH	37
Unit Production Cost	215

ii) contribution margin income statement for the year.

Sales (420*4500)		1890000
Less Variable expenses
variable costs of goods sold (4500*37)	-166500
variable selling and administrative expenses (45*4500)	-202500
Contribution margin		1521000
Less Fixed expenses
fixed manufacturing overhead	-210000
fixed selling and administrative expenses	-190000
Net operating income		1121000

iii). Number of fire places required to break even : 2500

Calculation:

Breakeven units	= fixed cost/contribution
Contribution per unit	= selling price - variable cost

Contribution (420-135-43-37-45)	160
Fixed cost (210000+190000)	400000

Breakeven units

=fixed cost/contribution

Breakeven units = 400,000/160 = 2500 units

2. Using Absorbtion costing :-

i). Unit Product cost for one fire place : 257

Calculation:

Unit product cost using Absorbtion costing.

Direct materials	135
Direct labor	43
Variable manufacturing overhead	37
fixed manufacturing overhead (=210000/5000)	42
Unit product cost	257

ii). Income statement for the year

Sales (420*4500)	1,890,000
costs of goods sold (4500*37)	(166,500)
Gross margin	1,723,500
Selling and administrative expenses (202500+190000)	392,500
Net operating income	1,331,000