Diego company manufactures one product that is sold for 72 per unit and two geog

Question

Diego company manufactures one product that is sold for 72 per unit and two geographic regions 123movies Traditional Di..dicial Branch Real Estate L... Cheat Sheet SuperTracker Home MyPlate Afdah | Watch ine- Part 3 dail Connect ACCOUNTING Unit 4-Chapter 6 Assignment Questions 1-15 (of 15) The following information applies to the questions displayed below Diego Company manufactures one product that is sold for $72 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 55,000 units and sold 50,000 units Varlable costs per unit 23 14 Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Flxed costs per year $ 770000 Flxed manufacturing overhead Fixed selling and administrative expenses$ 607000 The company sold 37,000 units in the East region and 13,000 units in the West region. t determined that $290,000 of ts fixed selling and administrative expenses is traceable to the West region, $240,000 is traceable to the East region, and the remaining $77.000 is a common fxed cost. The company will continue to incur the total amount of its fixed manufacturing overmead costs as long as it continues to produce any amount of its only product 20 F3 8 0 6 4

Explanation / Answer

1. What is the unit product cost under variable costing?
Answer = The unit product cost under variable costing includes the total manufacturing variable cost per unit calculated as under: The unit product cost under variable costing does not include variable selling and administrative expenses and total fixed cost
Variable costs per unit: Direct materials + Direct labor + Variable manufacturing overhead
Unit product cost under variable costing = 23+ 14 +3 = 40

2. What is the unit product cost under absorption cost ?
Answer = Absorption cost per unit: Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead
Unit product cost under variable costing = 23+ 14 +3 + 14 (770000/55000) = 54

3. what is the companys's total contribution margin under variable costing ?
Total contribution margin = Sales - (Variable Cost of goods sold + Variable selling and administrative expense)
= [50000 *72] - [(50000 * 40) + (50000 * 5)]
= 1,350,000

4. What is the company's net operating income (loss) under variable costing?
Net operating income = Sales - (Variable Cost of goods sold + Variable selling and administrative expense) - (Fixed manufacturing overhead + Fixed selling and administrative expense)
= [50000 *72] - [(50000 * 40) + (50000 * 5)] - [770000 + 607000]
= -27000
Net operating loss = 27000

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