Table 2 A—breaks down by fixed, variable, and mixed Write down after looking at
ID: 2332225 • Letter: T
Question
Table 2 A—breaks down by fixed, variable, and mixed
Write down after looking at the table above:
which items are variable
Which are fixed
Which will you consider mixed? What is your basis for classifying them as “mixed”
Express the mixed costs using the cost function formula (Y=A+bX)—Y is total cost; A is fixed cost, b is variable cost per unit and X is the number of units. To help you out the formula is given:
Y= (fix. Mfg. OH+ fix. Selling+ fix. Adm.) + X (dir. Material+ dir. Labor+ Var. OH+ Sales com.)
Y= (40,000+30,000+20,000)+ X(6+3.5+1.5+1.0)
What is TOTAL Product costs for 10, 000 units see table 1 above to see how it is done.
Calculate the total period costs for 10,000 units ( see table 1)
What information is needed to help prepare an income statement from the data provided:
Assume selling price per unit is $30, and units sold are 10,000; please prepare a contribution margin income statement –it is done for you but it has a mistake. Can you find out the error in the contribution income statement! J
Y= (fix. Mfg. OH+ fix. Selling+ fix. Adm.) + X (dir. Material+ dir. Labor+ Var. OH+ Sales com.)
Y= (40,000+30,000+20,000)+ X(6+3.5+1.5+1.0)
direct material direct labor var. mfg OH fix. mfg OH fix. Selling fix. Adm. sales commissions var. adm.Explanation / Answer
Good Job on solving the question
I see in question:
- Variable admin expenses of $5000 are given no where. If it is missing here but are actually there, then no probelm
- Variable Admin expenses are 5000 for 10,000 units. Hence $0.5 per unit which in total will bring total variable cost to $12.5 per unit which will be ~41.67% of Selling Price instead of 40%.
Except above, there is no error in Contribution Statement. Explanations goes as follows:
1. Operating Income under both the approaches will be equal since there is no involvement of Opening & Closing stock.
2. All the costs has been correctly categorized in Contribution statement and fits well with Marginal costing approach.
Hope this clarifies your doubt. Please feel free to comment if this is not the solution you are looking for.
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