Diego Company manufactures one product that is sold for $80 per unit in two geog
ID: 2482376 • Letter: D
Question
Diego Company manufactures one product that is sold for $80 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 40,000 units and sold 35,000 units.
Variable costs per unit:
Manufacturing:
Direct materials
Direct labor
Variable Manufacturing OH
$ 24
14
2
Variable selling & administrative
4
Fixed costs per year:
Fixed manufacturing OH
Fixed selling & administrative expenses
$ 800,000
496,000
The company sold 25,000 units in the East Region and 10,000 in the West Region. It determined that $250,000 of its fixed selling and administrative expenses is traceable to the West Region, $150,000 is traceable to the East Region, and the remaining $96,000 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.
Required:
Answer each question independently based on the original data unless instructed otherwise. You do not need to prepare a segmented income statement until question 13.
What is the unit product cost under variable costing?
What is the unit product cost under absorption costing?
What is the company’s total contribution margin under variable costing?
What is the company’s net operating income under variable costing?
What is the company’s total gross margin under absorption costing?
What is the company’s net operating income under absorption costing?
What is the amount of the difference between the variable costing and absorption costing net operating incomes? What is the cause of this difference?
Variable costs per unit:
Manufacturing:
Direct materials
Direct labor
Variable Manufacturing OH
$ 24
14
2
Variable selling & administrative
4
Fixed costs per year:
Fixed manufacturing OH
Fixed selling & administrative expenses
$ 800,000
496,000
Explanation / Answer
3) Total contribution marin = Unit sold [Selling price -unit cost - variable selling cost]
= 35000 [ 80 - 40 - 4]
= 35000 * 36
= $ 1260000
4)net operating income =Contribution - Total fixed cost
= 1,260,000- [800,000 + 496,000]
= $ -36000 (loss)
5)Total gross margin =Units sold [ price -unit cost]
= 35000 [ 80-60].
= 35000 *20 = $ 700,000
6) Net operating income = Gross margin - Fixed selling cost -variable selling cost
= 700,000- 496000 - (4*35000)
= 700000- 496000- 140000
= $ 64000
3)Difference amount = -36000 -64000 = - 100,000
The difference is due to fixed manufacturing overhead deferred in ending inventory under absorption costing
Ending units = 40000-35000 = 5000
Fixed overhead = 20*5000 = 100,000
Absorption costingv variable costing Direct material 24 24 Direct labor 14 14 Variable overhead 2 2 Fixed overhead 800000/40000 = 20 Unit cost 60 40Related Questions
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