Your Company manufactures and sells one product. The selling price per unit is $
ID: 2427680 • Letter: Y
Question
Your Company manufactures and sells one product. The selling price per unit is $80 per unit. The following pertains to the company's first year of operations in which it produced 40,000 and sold 35,000 units.
Variable costs:
Manufacturing:
Direct materials
960,000
Direct labor
560,000
Variable manufacturing overhead
80,000
Variable selling
140,000
Fixed Costs per year:
Fixed manufacturing
840,000
Fixed selling and administrative
490,000
Instructions:
1.Using the above information prepare
an income statement in the traditional
format.
2. Prepare an income statement in the
contribution format.
3. Compute the unit cost under absorption costing.
4. Compute the unit cost under variable costing.
5. Compute the contribution margin per unit.
6. Compute the contribution margin ratio
7. There is a difference in the net income using one
statement versus the other; explain the
cause of the difference?
8. Compute the breakeven sales in units
9. Compute the breakeven sales dollars.
Variable costs:
Manufacturing:
Direct materials
960,000
Direct labor
560,000
Variable manufacturing overhead
80,000
Variable selling
140,000
Fixed Costs per year:
Fixed manufacturing
840,000
Fixed selling and administrative
490,000
Instructions:
1.Using the above information prepare
an income statement in the traditional
format.
2. Prepare an income statement in the
contribution format.
3. Compute the unit cost under absorption costing.
4. Compute the unit cost under variable costing.
5. Compute the contribution margin per unit.
6. Compute the contribution margin ratio
7. There is a difference in the net income using one
statement versus the other; explain the
cause of the difference?
8. Compute the breakeven sales in units
9. Compute the breakeven sales dollars.
Explanation / Answer
Answer: 1. Income Statement in Traditional format Income Statement of Company Particulars Amount (in $) Net Sales 2800000 Less: Operating expenses Direct materials 960000 Direct labor 560000 Variable manufacturing overhead 80000 Variable selling 140000 Fixed manufacturing 840000 Fixed selling and administrative 490000 Gross Loss/ Net Loss -270000 2. Income Statement in Contribution format Income Statement of Company Particulars Amount (in $) Sales 2800000 Less: Direct materials 960000 Direct labor 560000 Variable manufacturing overhead 80000 Variable selling 140000 Contribution Margin 1060000 Less: Fixed manufacturing 840000 Fixed selling and administrative 490000 Net Loss -270000 3. Compute the unit cost under absorption costing Particulars Amount (in $) Direct materials 960000 Direct labor 560000 Variable manufacturing overhead 80000 Fixed manufacturing 840000 Total 2440000 Unit cost under Absorption Costing= (Direct Materials+ Direct Labor+ Variable manufacturing overhead+ Fixed manufacturing overhead)/ Number of units produced In the given question, Direct Materials+ Direct Labor+ Variable manufacturing overheads+ Fixed manufacturing overheads= 2440000 Number of units produced 40000 Unit Cost 61 4. Compute the unit cost under variable costing Particulars Amount (in $) Direct materials 960000 Direct labor 560000 Variable manufacturing overhead 80000 Total 1600000 Unit cost under Variable Costing= (Direct Materials+ Direct Labor+ Variable manufacturing overhead)/ Number of units produced In the given question, Direct Materials+ Direct Labor+ Variable manufacturing overheads= 1600000 Number of units produced 40000 Unit Cost 40 5. Compute the contribution margin per unit Contribution Margin= Sales- Variable expenses In the given question, Sales= 80 per unit Variable expenses= Direct material+ Direct labor+ Variable manufacturing overheads+ Variable selling overheads Variable expenses= 1740000 Variable expenses per unit= 1740000/35000= 49.71 Therefore, Contribution margin per unit= 80/49.71= 1.61 5. Compute the contribution margin ratio Contribution Margin Ratio= (Sales- Variable expenses)/ Sales In the given question, Sales= 2800000 Variable expenses= 1740000 Therefore, Contribution margin ratio= (2800000-1740000)/ 2800000= 37.85% Note: All the amounts have been rounded- off to two decimals.
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