0 Required Information The following information applies to the questions displa

Question

0 Required Information 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 44,000 units and sold 39,000 units. Variable costs per uniti Kanafacturings Direet materials Direet labor 16 Variable mansfacturing overhead Variable selling and administrative Pixed eosts per years manufacturing everhead Pixed selling and administrative expense 400,00 s 748,000 The fixed selling and administrative expense is traceable to the West region, $130,000 is traceable to the East region, and the company sold 29.000 units in the East region and 10,000 units in the West region. It determined that $180,000 of its s a common fixed expense. 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?

Explanation / Answer

Solution: Net operating income 29,000 Working Notes: Sales 2847000 [39,000 units x $73 per unit] Cost of goods sold 2,262,000 (see Notes 1) Gross margin 585,000 [$2,847,000 - $2,262,000] Selling and administrative expenses 556,000 (see Notes 2) Net operating income 29,000 Notes 1 Cost of goods sold [cost per unit(material + labor + Mfg. oh +(Fixed Mfg. OH/units produced)) x units sold ] =(23+16+2+(748,000/44000)) x 39000 =$58 x 39,000 units =$2,262,000 Notes 2 Selling and administrative expenses [units variable cost per unit x units sold + fixed selling & admin. Cost] [39,000 x $4 + $400,000] =$556,000 Please feel free to ask if anything about above solution in comment section of the question.

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