I got NI $46,000 in A, $30,000 NI for B and 16,000 units ($480,000) for C. Howev
ID: 2463330 • Letter: I
Question
I got NI $46,000 in A, $30,000 NI for B and 16,000 units ($480,000) for C. However, I am unsure of my answers. Can you please doubel check?
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
Answer (a)
Income statement using full costing
Amount (in $)
Sales (18,000 units*30)
540,000
Less: Cost of goods sold
Cost of goods manufactured (20*20,000)
400,000
Goods available for sale
400,000
Less ending inventory (20*2000)
40,000
Cost of goods sold
360,000
Gross Margin (Sales-Cost of goods sold)
180,000
Less selling and administrative expenses
Variable selling and administrative expenses (18000*3)
54,000
Fixed selling and administrative expenses
80,000
134,000
Net operating income
46,000
Answer (b)
Variable Costing Income Statement
Amount (in $)
Sales (18,000 units×$30 per unit)
540,000
Less: Variable expenses
Variable cost of goods sold:
variable manufacturing costs (20,000 units×$12 per unit)
240,000
Goods available for sale
Less ending inventory (2,000 units×$12 per unit)
24,000
Variable cost of goods sold
216,000
Variable selling and administrative expenses
(18,000 units × $3 per unit)
54,000
Total variable cost
270,000
Contribution margin ($540,000 $270,000)
270,000
Less fixed expenses
Fixed manufacturing overhead
160,000
Fixed selling and administrative expenses
80,000
Total fixed cost
240,000
Net operating Income ($270,000 $240,000)
30,000
Answer (c)
Break even units=Fixed Cost/Unit contributed margin
Unit Contributed margin=270000/18000
Unit Contributed margin=15
Break even units=240000/15
16,000
Break even units=16000
Break even sales=Break even units*Sale price per unit
Break even sales=16000*30
Break even sales=480000
Yes, it is easy to calculate break even point by using variable costing method as it differently calculates contribution margin and fixed cost, whereas it is little difficult in full costing method.
Answer (a)
Income statement using full costing
Amount (in $)
Sales (18,000 units*30)
540,000
Less: Cost of goods sold
Cost of goods manufactured (20*20,000)
400,000
Goods available for sale
400,000
Less ending inventory (20*2000)
40,000
Cost of goods sold
360,000
Gross Margin (Sales-Cost of goods sold)
180,000
Less selling and administrative expenses
Variable selling and administrative expenses (18000*3)
54,000
Fixed selling and administrative expenses
80,000
134,000
Net operating income
46,000
Answer (b)
Variable Costing Income Statement
Amount (in $)
Sales (18,000 units×$30 per unit)
540,000
Less: Variable expenses
Variable cost of goods sold:
variable manufacturing costs (20,000 units×$12 per unit)
240,000
Goods available for sale
Less ending inventory (2,000 units×$12 per unit)
24,000
Variable cost of goods sold
216,000
Variable selling and administrative expenses
(18,000 units × $3 per unit)
54,000
Total variable cost
270,000
Contribution margin ($540,000 $270,000)
270,000
Less fixed expenses
Fixed manufacturing overhead
160,000
Fixed selling and administrative expenses
80,000
Total fixed cost
240,000
Net operating Income ($270,000 $240,000)
30,000
Answer (c)
Break even units=Fixed Cost/Unit contributed margin
Unit Contributed margin=270000/18000
Unit Contributed margin=15
Break even units=240000/15
16,000
Break even units=16000
Break even sales=Break even units*Sale price per unit
Break even sales=16000*30
Break even sales=480000
Yes, it is easy to calculate break even point by using variable costing method as it differently calculates contribution margin and fixed cost, whereas it is little difficult in full costing method.
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