The following information relates to Axar Products for the past year, the compan
ID: 2421440 • Letter: T
Question
The following information relates to Axar Products for the past year, the company's first year of operation:
Units produced - 20,000
Units Sold - 18,000
Selling price per unit - $30
Direct material per unit - $6
Direct lobor per unit - $4
Variable manufacturing overhead per unit - $2
Variable selling cost per unit - $3
Annual fixed manufacturing overhead - $160,000
Annual fixed selling and administrative expense - $80,000
a. Prepare an income statement using full costing
b. Prepare an income statement using variable costing
c. Using the variable costing income statement, calculate the company's break-even point in sales dollars and in units. Can the break-even point be calculated easily using the full costing income statement? Why or why not?
Explanation / Answer
a.
Particulars
Units
Per unit
Total
Sales (A)
18000
30
540000
Variable Cost (B)
15
270000
Direct Material
18000
6
108000
Direct labour
18000
4
72000
Variable selling cost
18000
3
54000
Vaiable Mfg over head
18000
2
36000
Contribution margin (C )=(A)-(B)
15
270000
Fixed Cost
12
216000
Fixed Mfg Overheads (160000/20000)
18000
8
144000
Fixed selling and admin exp ( 80000/20000)
18000
4
72000
Net Income
3
54000
b.
Particulars
Units
Per unit
Total
Sales (A)
18000
30
540000
Variable Cost (B)
15
270000
Direct Material
18000
6
108000
Direct labour
18000
4
72000
Variable selling cost
18000
3
54000
Vaiable Mfg over head
18000
2
36000
Contribution margin (C )=(A)-(B)
15
270000
C.
Total fixed cost (A)
240000
Per unit contribution margin (B)
15
No of units for break even (C )=(A)/(B)
16000
Per unit sales price (D)
30
Amount of sales for breakeven (C )*(D)
480000
For the purpose of calculation of breakeven point the contribution margin is required for the same variable cost income statement is required. Hence it can not be calculated using full cost statement.
Particulars
Units
Per unit
Total
Sales (A)
18000
30
540000
Variable Cost (B)
15
270000
Direct Material
18000
6
108000
Direct labour
18000
4
72000
Variable selling cost
18000
3
54000
Vaiable Mfg over head
18000
2
36000
Contribution margin (C )=(A)-(B)
15
270000
Fixed Cost
12
216000
Fixed Mfg Overheads (160000/20000)
18000
8
144000
Fixed selling and admin exp ( 80000/20000)
18000
4
72000
Net Income
3
54000
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