CompuDesk, Inc., makes an oak desk specially design for personal computers. The

Question

CompuDesk, Inc., makes an oak desk specially design for personal computers. The desk sells for $200. Data for last year's operations follow: Units in beginning inventory --- 0 Units produced ------------------- 10,000 Units sold -------------------------- 9,000 Units in ending inventory ------ 1,000 Variable costs per unit: Direct materials -------------------------- $ 60 Direct labor ----------------------------------- 30 Variable manufacturing overhead ----- 10 Variable selling and administrative --- 20 Total variable cost per unit --------- $ 120 Fixed costs: Fixed manufacturing overhead ------ $ 300,000 Fixed selling and administrative ------ 450,000 Total fixed costs ---------------------- $ 750,000 1) Assume that the company uses variable costing. Compute the unit product cost for a (1) computer desk. 2) Assume that the company uses variable costing. Prepare an income statement for a year in good form using the contribution format. 3) What is the company's break-even point in terms of units sold? 4) Reconcile the difference Refer to the data above for CompuDesk. Assume in this exercise that the company uses absorption costing. 1) Compute the unit product cost for one computer desk. 2) Prepare an income statement for the year in good form.

Explanation / Answer

Assuming that the company using Variable Costing (1) Computation of the unit product cost for a computer desk:- Amount in $ Direct Material cost per unit 60 Direct Labour cost per unit 30 V. Manufacturing Overhead per unit 10 Cost per unit 100 (2) Income Statement for a year in good form using the contribution format Amount in $ Revenue/Sale 9000 unit @ $200 1800000 Less: Variable Cost of Production Cost of Production 10000 unit @ $100 1000000 Add: Op. Stock of F. Goods 0 unit @ $100 - Less: Cl Stock of F. Goods 1000 unit @ $100 100000 Variable cost of Goods Sold 900000 Add: Variable Selling & Admin O.H. 9000 unit @ $20 180000 Variable cost of sale 1080000 Contribution 720000 Less: Fixed Cost Manufacturing O.H 300000 Selling & Admin O.H. 450000 750000 Profit/(Loss) (30000) (3) Company’s Break Even Point in terms of units sold Break Even Point = Total Fixed Cost /Contribution Per unit Contribution Per Unit = [Sale Price – (Cost of Production + Variable Selling O.H.)]per unit = $ [200 – (100+20)] = $ 80 Total Fixed Cost = $ 750000 Hence B.E.P. = 750000/80 = 9375 unit (4) Reconciliation of Difference between Variable Costing & Absorption Costing Assumptions Amount in $ Profit/(Loss) under Variable Costing Assumption (30000) Add: Fixed Manufacturing O.H. included in Closing Stock Under absorption costing assumption (130000 – 100000) 30000 Profit/(Loss) under Absorption Costing Assumption NIL Assuming that the company using Absorption Costing (1) Computation of the unit product cost for a computer desk:- Amount in $ Direct Material cost per unit 60 Direct Labour cost per unit 30 V. Manufacturing Overhead per unit 10 Fixed Manufacturing OH per unit $300000/10000 30 Cost per unit 130 (2) Income Statement for a year in good form using the contribution format Amount in $ Revenue/Sale 9000 unit @ $200 1800000 Less: Cost of Sale Cost of Production 10000 unit @ $130 1300000 Add: Op. Stock of F. Goods 0 unit @ $130 - Less: Cl Stock of F. Goods 1000 unit @ $130 130000 Cost of Goods Sold 1170000 Add: Variable Selling & Admin O.H. 9000 unit @ $20 180000 Fixed Cost of Selling & Admin O.H. 450000 Cost of sale 1800000 Profit/(Loss) NIL

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.