ACC2233 Hand-In Assignment 7v2 Problem One Absorption and Variable Costing; CVP

Question

ACC2233 Hand-In Assignment 7v2 Problem One Absorption and Variable Costing; CVP Analysis Hawkesbury Company began operations on January 1 to produce a single product. It used an absorption costing system with a planned production volume of 100,000 units. During its first year of operations, there were no fixed selling or administrative expenses. Inventory on December 31 was 20,000 units, and net income for the year was $480,000. Required: 1. If Hawkesbury Company had used variable costing, its net income would have been $440,000. Compute the break-even point in units under variable costing. 2. Draw a profit-volume graph for Hawkesbury Company. (Use variable costing.)

Explanation / Answer

Net operating income variable costing 440000 Add Ending inventory Fixed manufacturing 40000 (20000*2) Net operating income absorption costing 480000 Total fixed manufacturing cost 200000 (100000*2) Net income using variable costing 440000 Add Total fixed manufacturing cost 200000 Contribution margin 640000 Number of units 80000 Contribution margin per unit 8 Breakeve in unit = fixed cost / contribution margin per unit Fixed cost 200000 Contribution margin per unit 8 Breakeven in units 25000 units

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