[The following information applies to the questions displayed below.] Diego Comp
ID: 2426150 • Letter: #
Question
[The following information applies to the questions displayed below.]
Diego Company manufactures one product that is sold for $73 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 56,000 units and sold 51,000 units.
The company sold 38,000 units in the East region and 13,000 units in the West region. It determined that $300,000 of its fixed selling and administrative expenses is traceable to the West region, $250,000 is traceable to the East region, and the remaining $122,000 is a common fixed cost. 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.
6.What is the company’s net operating income (loss) under absorption costing?
13.Prepare a contribution format segmented income statement that includes a Total column and columns for the East and West regions.
15.Assume the West region invests $46,000 in a new advertising campaign in Year 2 that increases its unit sales by 20%. If all else remains constant, what would be the profit impact of pursuing the advertising campaign?
Diego Company manufactures one product that is sold for $73 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 56,000 units and sold 51,000 units.
Explanation / Answer
Income Statement Under Absorption Costing (Answer to Q. No 5 & 6)
Income Statement Under Absorption Costing (Answer to Q. No 5 & 6)
Particulars East West Total Units Sold (A) 38000 13000 51000 Sale Price (B) 73 73 C. Sales (A * B) 2774000 949000 3723000 D. Cost of Goods Sold (Note 1) 2,128,000 728,000 2856000 E. Gross Margin ( C- D) 646,000 221,000 867,000 F. Selling & Distribution Overhead (Note 2) 504,902 320,098 825,000 F. Net Operating Income (Loss) 141,098 -99,098 42,000 Note 1: Cost of Goods Sold Particulars East West Direct Materials 24 24 DL 16 16 Variable Manufacturing Overhead 2 2 Fixed Manufacturing Overhead (784000/56000) 14 14 Cost of Goods Sold /Units (A) 56 56 Unit Sold (B) 38000 13000 Cost of Goods Sold 2,128,000 728,000 Note 2: Selling & Administrative ( S & A) Overhead Particulars East West Variable Cost/unit 3 3 Units Sold 38000 13000 Total Variabele S & A Overhead 114,000 39,000 Fixed Allocated S & A Overhead 300000 250000 COmmon S & A Overhead (Alloacted based on sales Unit) 90902 31098 Total S & A Overhead 504,902 320,098 Income Statement Under Variable Costing Particulars Amount A. Sales (73 * 51000) 3,672,000 B. Variable Cost (Note 3) 2,454,000 C.Contribution (A - B) 1,218,000 Fixed Cost D. Manufacturing Over Head 784000 E. S & A Overhead 672000 Net Operating Income/(Losses) -238,000 Note 3: Total Variable Cost Direct Material 24 Direct Labor 16 Variable Manufacturing Overhead 2 A. Total Manufacturing Variable Cost 42 B .Units Manufactured 56000 C. Total Variable Manufacturing Cost (A * B) 2352000 Variable S& A Overhead 2 Units Sold 51000 D. Total Variable S & A Overhead 102000 Total Variable Cost ( C + D) 2,454,000 Answer to Q. No, 8 Operating Income/(Loss) under Absorption Costing : 42000 Operating Income/(Loss)under Variable Costing : (238000) Difference = -42000 - 238000 = (280,000) Answer to Q. No. 9 Total Fixed Cost = 784000 + 672000 = 1456,000 Contribution/Unit = 1,218,000 / 51000 = 23.88/Unit Break Even Units = Fixed Cost/Contribution/Unit = 1,456,000/23.88 = 60,972 UnitsRelated Questions
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