[The following information applies to the questions displayed below.] Diego Comp
ID: 2537020 • Letter: #
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[The following information applies to the questions displayed below.]
Diego Company manufactures one product that is sold for $70 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 41,000 units and sold 36,000 units.
The company sold 26,000 units in the East region and 10,000 units in the West region. It determined that $150,000 of its fixed selling and administrative expenses is traceable to the West region, $100,000 is traceable to the East region, and the remaining $58,000 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.
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WorksheetLearning Objective: 06-01 Explain how variable costing differs from absorption costing and compute unit product costs under each method.Learning Objective: 06-03 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ.
Difficulty: 2 MediumLearning Objective: 06-02 Prepare income statements using both variable and absorption costing.Learning Objective: 06-04 Prepare a segmented income statement that differentiates traceable fixed costs from common fixed costs and use it to make decisions.
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Diego Company manufactures one product that is sold for $70 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 41,000 units and sold 36,000 units.
Explanation / Answer
Variable costs per unit: Manufacturing: Direct materials 20.00 Direct labor 10.00 Variable manufacturing overhead 2.00 Variable selling and administrative 4.00 Fixed costs per year: Fixed manufacturing overhead 984,000 Fixed selling and administrative expenses 308,000 East West Selling Price 70.00 70.00 Units Sold 26000 10000 A Calculation of Unit Product Cost under Variable Costing: Amount Direct materials 20.00 Direct labor 10.00 Variable manufacturing overhead 2.00 Total Unit Cost 32.00 B Calculation of Unit Product Cost under Absorption Costing: Amount Direct materials 20.00 Fixed Manufacturing Cost 9,84,000 Direct labor 10.00 Units Produced 41000 Variable manufacturing overhead 2.00 Per Unit M.OH(Fixed) 24.00 Fixed Manufacturing Cost 24.00 Total Unit Cost 56.00 Note: Fixed Manuafcuring OH are not considered as per part of Unit Cost in Variable Costing Note: Variable & Fixed S&A cost are not part of Unit Costs C Calculation of Total Contribution Margin Variable Costing East West Total Sales 18,20,000 7,00,000 25,20,000 Less: Variable Costs: Direct materials 5,20,000 2,00,000 7,20,000 Direct labor 2,60,000 1,00,000 3,60,000 Variable manufacturing overhead 52,000 20,000 72,000 Variable S&A Cost 1,04,000 40,000 1,44,000 Contribution Margin 8,84,000 3,40,000 12,24,000 D Calculation of Total Net Operating Income Under Variable Costing East West Total Sales 18,20,000 7,00,000 25,20,000 Less: Variable Costs: Direct materials 5,20,000 2,00,000 7,20,000 Direct labor 2,60,000 1,00,000 3,60,000 Variable manufacturing overhead 52,000 20,000 72,000 Variable S&A Cost 1,04,000 40,000 1,44,000 Contribution Margin 8,84,000 3,40,000 12,24,000 Less: Fixed Manufacturing OH 9,84,000 Less: Fixed S&A OH 3,08,000 Net Operating Income -68,000
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