Diego Company manufactures one product that is sold for $70 per unit in two geog
ID: 2403355 • Letter: D
Question
Diego Company manufactures one product that is sold for $70 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 53,000 units and sold 48,000 units. Variable costs per unit: Manufacturing: Direct materials $ 21 Direct labor $ 10 Variable manufacturing overhead $ 2 Variable selling and administrative $ 4 Fixed costs per year: Fixed manufacturing overhead $ 1,060,000 Fixed selling and administrative expenses $ 557,000 The company sold 36,000 units in the East region and 12,000 units in the West region. It determined that $270,000 of its fixed selling and administrative expenses is traceable to the West region, $220,000 is traceable to the East region, and the remaining $67,000 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.
10. What would have been the company’s variable costing net operating income (loss) if it had produced and sold 48,000 units?
11. What would have been the company’s absorption costing net operating income (loss) if it had produced and sold 48,000 units?
13. Prepare a contribution format segmented income statement that includes a Total column and columns for the East and West regions.
Income Statement
Total Company East West
Explanation / Answer
10) Variable costing
Particulars
Amount (in $)
Sales (48000*70)
3360000
Less: Variable cost of goods sold
(1584000)
Gross contribution margin
1776000
Less : Variable selling (48000*4)
(192000)
Contribution margin
1584000
Less : Fixed expenses
(1617000)
Net operating income
(33000)
11) Absorption costing
Particulars
Amount (in $)
Sales (48000*70)
3360000
Less: Variable cost of goods sold
(2544000)
Gross profit
816600
Less : Selling and admin expenses
(749000)
Net operating income
67000
13) segment report
Particulars
Amount (in $)
EAST
WEST
TOTAL
Sales @70
2520000
840000
3360000
Less: variable cost @37
1332000
444000
1776000
Contribution
1188000
396000
1584000
Less: fixed cost (separable)
795000
220000
265000
270000
1060000
490000
Segment income
173000
(139000)
34000
Less: fixed cost (common)
67000
Net profit
33000
Particulars
Amount (in $)
Sales (48000*70)
3360000
Less: Variable cost of goods sold
- Opening stock nil
- Variable Cost of goods mfg 1749000 (53000*33)
- Closing stock (5000*33) (165000)
(1584000)
Gross contribution margin
1776000
Less : Variable selling (48000*4)
(192000)
Contribution margin
1584000
Less : Fixed expenses
- Fixed mfg OH 1060000
- Fixed selling 557000
(1617000)
Net operating income
(33000)
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