12 20 Consider the following stateme 1. A division\'s ne·operating cting bub tse
ID: 2597823 • Letter: 1
Question
12 20 Consider the following stateme 1. A division's ne·operating cting bub tseeable md aliated common ised costs, is negative. menew, a.ler The division's traceable fised costs plus its allocated coenm which ofthe above statments isavalid reason eliminting the division A. Only 1 B. Only 2 C. Only 3, D. Only 1. and 2 E. Only 2, and 3. 21 Krugman Company manufactures and sells one product. The following information pertains to each of the company's first two years of operations Variable cost per unit: Direct materials 589 per unit Fixed costs per year: Direct labor Fixed manufacturing overhead Fixed selling and administrative $1,344,000 $3,472,000 $1,782,000 The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. The selling price of the company's product is $227 per unit. Year I 56,000 56,000 54,000 58,000 Year 2 Production (units) Sale (units) The company is considering using either super-variable costing or a variable costing system that assigns direct labor cost equally to each unit that is produced. Which of the following statements is true regarding the net operating income (NOI) in the first year? A. Variable costing NOI exceeds super-variable costing NOl by B. Super-variable costing NOI exceeds variable costing NOI by C. Variable costing NOI exceeds super-variable costing NOI by D, Super-variable costing NOI exceeds variable costing NOI by E. None of the above S172,000 S172,000 $48,000 $48,000Explanation / Answer
Answer = C
Variable Costing NOI exceeds Super variable costing NOI by $48,000
Super variable Costing
Under Super variable costing Variable cost will be of Material only
Variable cost = $89/Unit
And all other cost will be deducted while calculating Net Operating Income
Particulars
In $
Sales (54,000 Units * 227)
12,258,000
Variable Cost
Direct Material (54,000 Units * 89)
4,806,000
Contribution margin
7,452,000
Fixed Cost
Direct Labor
1,344,000
Fixed Manufacturing Overhead
3,472,000
Fixed selling and administrative
1,782,000
Net Operating Income
854,000
Variable Costing
Under Variable costing Variable cost will be of Material and Labor both
Labor Cost per Unit = Cost/Production Units
= 1,344,000/56,000 Units
Labor Cost per Unit = $24 per unit
Variable cost = $113(89+24) per unit
And all other cost will be deducted while calculating Net Operating Income
Particulars
In $
Sales (54,000 Units * 227)
12,258,000
Variable Cost
Direct Material (54,000 Units * 89)
4,806,000
Direct Labor (54,000 Units * 24)
1,296,000
Contribution margin
6,156,000
Fixed Cost
Fixed Manufacturing Overhead
3,472,000
Fixed selling and administrative
1,782,000
Net Operating Income
902,000
Variable Costing has more NOI by $48,000 (902,000 – 854,000)
Particulars
In $
Sales (54,000 Units * 227)
12,258,000
Variable Cost
Direct Material (54,000 Units * 89)
4,806,000
Contribution margin
7,452,000
Fixed Cost
Direct Labor
1,344,000
Fixed Manufacturing Overhead
3,472,000
Fixed selling and administrative
1,782,000
Net Operating Income
854,000
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