EXERCISE 8-5 Variable Costing Unit Product Cost and Income St LO1, LO2) Waterloo
ID: 2584178 • Letter: E
Question
EXERCISE 8-5 Variable Costing Unit Product Cost and Income St LO1, LO2) Waterloo Storage Products makes a four-drawer plastic storage cabi reak s35. Data for last year's operation for use in garages and workshops. Each cabinet sells for $35. Data for follow: Units in beginning inventory. Units produced Units sold Units in ending inventory Variable costs per unit Direct materials Direct labour Variable manufacturing overhead ariable seing and administrative.. 25000 21500 3500 10 Total variable cost per unt.. Fixed costs Fixed manufacturing overhead Fived selling and administrative. $ 24 ...75000 10000 $185000 Total fixed costs.. Required 1. 'Assume that the company uses variable costing Compute the unit product cos fir a storage cabinet. 2. Assume that the company uses variable costing., Prepare a contribution form 3. What is the company's break-even point in terms of units sold? ome statement for the year.Explanation / Answer
1. Unit Product Cost - Variable Costing
Direct material = 8
Direct Labour = 10
Variable manufacturing overhead = 2
So total unit product cost = 10 + 8 + 2 = 20
2. Sales: (21,500 x $35) = $ 752,500
Variable Expenses:
Variable COGS:
Variable Manufacturing Cost (25,000 units made x $20 per units) = 500,000
Goods available for sale: 500,000
Less ending inventory: (3500 units x $20 per unit) = 70,000
Variable Cost of goods sold = $ 500000 - $ 70000 = $430,000
Variable Selling and Admin. expenses (21,500 x $4 per unit) = 86,000 Total: (516,000)
Cont Margin (752,500 – 516,000) = $236,500
Fixed Expenses:
Fixed Manufacturing overhead = 75,000
Fixed Selling & Admin = 110,000 Total: (185,000)
Operating Profit: 236,500 - 185,000 = $51,500
3. Break even point in quantity = 185,000/ (35-24) = 16,819 units ( Fixed cost / UCM )
Because UCM = $35 – 20 – 4 = $11
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