Roberts Company manufactures and sells one product. The following information pe

Question

Roberts Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations

Roberts Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations

Variable costs per unit Manufacturing Direct materials $ Direct labor Variable manufacturing overhead 28 20 4 Variable selling and administrative Fixed costs per year Fixed manufacturing overhead Fixed selling and administrative expenses $210,000 $150,000 During its first year of operations Roberts produced 60,000 units and sold 60,000 units. During its second year of operations it produced 75,000 units and sold 50,000 units. In its third year, Roberts produced 40,000 units and sold 65,000 units. The selling price of the company's product is $61 per unit. Requirec 1. Compute the company's break-even point in units sold Break-even unit sales units 2. Assume the company uses variable costing a. Compute the unit product cost for year 1, year 2, and year 3 Year 1 Year 2 Year 3 Unit product cost b. Prepare an income statement for year 1, year 2, and year 3 Roberts Company Variable Costing Income Statement Year 1 Year 2 Year 3 Variable expenses Total variable expenses Fixed expenses Total fixed expenses Net operating income (loss)

Explanation / Answer

1. Break even sales Fixed Cost Manufacturing O/h 210000 Selling & Admin exp 150000 Total FC 360000 Contribution Selling Price 61 Material 28 Labour 20 Variable O/h 4 Variable selling exp 3 Contribution 6 BEP = Fixed Cost/ Contribution (360000/6) = 60000 units 2. Unit Product Cost 60000 units 750000 units 40000 units P.U. Amount P.U. Amount P.U. Amount Material 28 1680000 28 2100000 28 1120000 Labour 20 1200000 20 1500000 20 800000 Variable O/h 4 240000 4 300000 4 160000 Manufacturing O/h 3.5 210000 2.8 210000 5.25 210000 Cost of Production 55.5 3330000 54.8 4110000 57.25 2290000 2(b) Income Statement Year 1 working Year 2 working Year 3 working Sales Value 3660000 (60000*61) 3050000 (50000*61) 3965000 (65000*61) Variable Expenses: Variable Cost 3120000 (60000*52) 2600000 (50000*52) 3380000 (65000*52) Selling exp 180000 (60000*3) 150000 (50000*3) 195000 (65000*3) Total Variable Expenses 3300000 2750000 3575000 Fixed Expenses: Manufacturing O/h 210000 210000 210000 Selling & Admin exp 150000 150000 150000 Total Fixed Expenses 360000 360000 360000 Net Operating exp 0 -60000 30000

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