1. Danahy Corporation manufactures a single product. The following data pertain
ID: 2532089 • Letter: 1
Question
1. Danahy Corporation manufactures a single product. The following data pertain to the company's operations over the last two years:
What was the absorption costing net operating income this year?
Multiple Choice
$62,000
$74,000
$70,000
$66,000
2. Wyrich Corporation has two divisions: Blue Division and Gold Division. The following report is for the most recent operating period:
What is the company's overall net operating income if it operates at the break-even points for its two divisions?
$2,250
$0
$(73,080)
$(359,080)
Variable costing net operating income, last year $ 52,000 Variable costing net operating income, this year $ 68,000 Fixed manufacturing overhead costs released from inventory under absorption costing, last year $ 4,000 Fixed manufacturing overhead costs deferred in inventory under absorption costing, this year $ 6,000Explanation / Answer
1.)THE CORRECT OPTION IS B $74000
The income under absorption costing this year = income under variable costing + fixed manufacturing overhead cost deffered in inventory under absorption costing this year
$68000+$6000=$74000
The income under absorption costing last year= income under variable costing - fixed manufacturing overhead cost released in inventory under absorption costing last year
$52000-$4000= $48000
2.) The correct option is C (73080)
At the break even point of division company will not able to recover its common fixed cost , the company will only able to recover its traceable fixed cost . At the breakeven point of divisions the company will not able to collect its 73080 fixed cost . which results loss of $ 73080.
break even point of blue division= total fixed cost of division / contribution margin ratio
total fixed cost = $239000
contribution margin ratio= (contribution / sales)*100
(301070/391000)*100=77%
break even sales= $239000/77%=$310390
variable cost is= 100- contribution margin ratio( here 100 % is total sales)
100-77%=23% of sales
profit of blue division= sales-variable cost - fixed cost
$310390-(310390*23%)-239000= $310390-71390-239000=$00.00
break even point of gold division= total fixed cost of division / contribution margin ratio
total fixed cost = $47000
contribution margin ratio= (contribution / sales)*100
(60260/131000)*100=46%
break even sales= $47000/46%=$102174
variable cost is= 100- contribution margin ratio( here 100 % is total sales)
100-46%=54% of sales
profit of blue division= sales-variable cost - fixed cost
$102174-(102174*46%)-47000= $102174-55174-47000=$00.00
total profit of company = profit of blue division + profit of gold division
$0.00+0.00=$0.00
net profit(loss) of company = total profit of company - common fixed expenses
$00.00-$73080=($73080)
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