Grange Manufacturing Company had net income of $300,000 in 2017 when the selling
ID: 2523824 • Letter: G
Question
Grange Manufacturing Company had net income of $300,000 in 2017 when the selling price per unit was $200 and data for variable and fixed costs were as follows:
Cost Schedule:
Variable Costs:
Direct Material
$28
Direct Labour
$35
Variable Manufacturing Overhead
$17
$80
Fixed Costs:
Manufacturing Overhead
$225,000
Advertising
45,000
Administrative
150,000
$420,000
Required:
i) Compute the number of units sold in 2017, using the equation method.
ii) Using the sales units calculated in (i), prepare a contribution margin income statement for the year ended December 31, 2017, detailing the components of total fixed costs, and clearly showing contribution and net income.
Explanation / Answer
Ans.1 Number of units sold = 3680 *Calculation: Sales = Variable cost + Fixed cost + Profit (Sales units * Selling price) = Variable cost + fixed cost + Profit (Sales units * 200) = 16000 + 420000 + 300000 sales units * 200 = 736000 Sales units = 736000 / 200 Sales units = 3680 *Calculation of total variable cost: Direct material (28*200) 5600 Direct labor (35*200) 7000 Variable manufacturing overhead (17*200) 3400 Total variable cost 16000 *Calculation of total fixed cost: Manufacturing overhead 225000 Advertising 45000 Administration 150000 Total Fixed Costs 420000 Ans.2 GRANGE MANUFACTURING COMPANY Contribution margin income statement For the year ended Dec. 31, 2017 PARTICULARS AMOUNT Sales Revenue (3680*200) 736000 Less: Variable cost Direct material 5600 Direct labor 7000 Variable manufacturing overhead 3400 Total variable cost 16000 Contribution margin 720000 Less: Fixed costs: Manufacturing overhead 225000 Advertising 45000 Administration 150000 Total Fixed cost 420000 Net income 300000 *Each component of Variable cost & fixed cost is already calculated in Ans.1. *Contribution margin = Sales revenue - Total variable costs *Net Income = Contribution margin - Total fixed costs.
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