Foundational [LO6-1, LO6-2, LO6-3, LO6-4] IThe following information applies to
ID: 2425407 • Letter: F
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Foundational [LO6-1, LO6-2, LO6-3, LO6-4] IThe following information applies to the questions displayed below.] Diego Company manufactures one product that is sold for $78 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 49,000 units and sold 44,000 units. Variable costs per unit: Manufacturing Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative 28 14 4 6 Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expenses $ 686,000 $ 510,000 The company sold 32,000 units in the East region and 12,000 units in the West region. It determined that $230,000 of its fixed selling and administrative expenses is traceable to the West region, $180,000 is traceable to the East region, and the remaining $100,000 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.Explanation / Answer
1. Unit product cost variable costing
Direct material $28
Direct labor $14
Variable manufacturing overheads $4
Unit product cost $46
2. unit product cost using absorption costing
Direct material $28
Direct labor $14
Variable manufacturing overheads$4
fixed manufacturing overheads
686,000/49,000 $14
Unit product cost $60
3. contribution margin under variable costing
sales revenue $78 * 44,000 $3,432,000
Direct material $28
Direct labor $14
Variable manufacturing overheads $4
variable selling and administrative $6 $52
total variable cost $52 * 44,000 $2,288,000
Contribution margin $1,144,000
4.
sales revenue $78 * 44,000 $3,432,000
less variable expense
Direct material $28
Direct labor $14
Variable manufacturing overheads $4
variable selling and administrative $6 $52
total variable cost $52 * 44,000 $2,288,000
Contribution margin $1,144,000
less fixed expenses
fixed manufacturing expense $686,000
Fixed selling and administrative expense $510,000 $1,196,000
net loss ($52,000)
5. Absorption costing
Sales revenue $44,000 * $78 = $3,432,000
Less cost of goods manufactured
Direct material $28
Direct labor $14
Manufacturing variable $4
Fixed manufacturing
686,000/49,000 $14
$60 *44,000 = $2,640,000
Total gross margin $792,000
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