[The following information applies to the questions displayed below.] Diego Comp

Question

[The following information applies to the questions displayed below.]

Diego Company manufactures one product that is sold for $78 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 49,000 units and sold 44,000 units.

The company sold 32,000 units in the East region and 12,000 units in the West region. It determined that $230,000 of its fixed selling and administrative expenses is traceable to the West region, $180,000 is traceable to the East region, and the remaining $100,000 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.

What is the company’s total contribution margin under variable costing?

What is the company’s net operating income (loss) under variable costing?  

What is the company’s total gross margin under absorption costing?

What is the company’s net operating income (loss) under absorption costing?

What is the company’s break-even point in unit sales?

Diego Company manufactures one product that is sold for $78 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 49,000 units and sold 44,000 units.

Explanation / Answer

Income statement under variable costing Sales: $        3,432,000 Less: Variable cost Direct materials $     1,232,000         Direct labor $        616,000         Variable manufacturing overhead $        176,000         Variable selling and administrative $        264,000 Contribution $        1,144,000 Less: Fixed cost Fixed manufacturing overhead $        686,000      Fixed selling and administrative expenses $        510,000 Net Income $            (52,000) Income statement under absorption costing Sales: $        3,432,000 Less: Variable cost Direct materials $     1,232,000         Direct labor $        616,000         Variable manufacturing overhead $        176,000 Fixed manufacturing overhead $        616,000 Gross Margin $            792,000 Less: S&A Expenses Fixed $        510,000 Variable $        264,000 Net Income $              18,000 Break even point=Fixed cost/ Contribution margin per unit =(686000+510000)/(1144000/44000)                                               46,000 Units

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