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ID: 2549391 • Letter: R
Question
Required information
[The following information applies to the questions displayed below.]
Diego Company manufactures one product that is sold for $76 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 58,000 units and sold 54,000 units.
The company sold 40,000 units in the East region and 14,000 units in the West region. It determined that $320,000 of its fixed selling and administrative expense is traceable to the West region, $270,000 is traceable to the East region, and the remaining $50,000 is 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.
Required:
1. What is the unit product cost under variable costing?
2. What is the unit product cost under absorption costing?
3. What is the company’s total contribution margin under variable costing?
4. What is the company’s net operating income (loss) under variable costing?
5. What is the company’s total gross margin under absorption costing?
6. What is the company’s net operating income (loss) under absorption costing?
Variable costs per unit: Manufacturing: Direct materials $ 23 Direct labor $ 15 Variable manufacturing overhead $ 3 Variable selling and administrative $ 3 Fixed costs per year: Fixed manufacturing overhead $ 1,160,000 Fixed selling and administrative expense $ 640,000Explanation / Answer
Ans:
Production Cost/Unit = Direct Martial + Direct Labor + Variable Cost
= $23+$15+$3
= $41
Hence,
Production Cost = Production Unit * Production Cost/Unit
= $58,000*41
= $2,378,000.00
Ans:
Production Cost/Unit = Direct Martial + Direct Labor + Variable Cost + Fixed Cost
= $23+$15+$3+$20*
= $61
Overhead Fixed Cost/Unit = Fixed Manufacturing Overhead/Production Unit
= 1,160,000/58,000
= $20
Hence,
Production Cost = Production Unit * Production Cost/Unit
= $58,000*61
= $3,538,000.00
Ans 3
Contribution Margin= Contribution margin (CM) is the amount by which sales revenue exceeds variable costs.
Contribution margin per unit = sales price – variable cost per unit
= $76 - $41(See Ans 1)
= $35
Total contribution margin = total sales – total variable costs
= units sold * sales price – units sold * variable cost per unit)
= units sold * (sales price – variable cost per unit)
= $54,000 * $35
= $1,890,000
Ans 4
Sales(54,000 Unit * 76)=$4,104,000
Less: Variable Cost of Goods Sold
Opening Inventory = $0
Add: Variable Cost for Production
(58,000*41) = $2378000
Less: Closing Inventory =
(4000*41) = $(164000)
Gross Contribution Margin = $1,890,000
Less Variable Marketing Cost = $162000
(54000*3)
Contribution Margin = $1,728,000
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