Question

*can someone please explain/show me the process of this problem? Thanks in advance!

Scott Company uses an absorption costing system based on standard costs. Total variable manufacturing costs, including direct materials, are $3.00 per unit. The standard production rate is 10 units per machine hour. Total budgeted and actual fixed manufacturing overhead costs are $420,000. Fixed manufacturing overhead is allocated at $6.00 per machine hour ($420,000 / 70,000 machine hours of denominator level). Selling price is $6.00 per unit. Variable operating costs, which are driven by units sold, are $1.25 per unit. Fixed operating costs are $140,000. Beginning inventory is 24,000 units; ending inventory is 43,000. Sales are 541,000 units. The same standard unit costs persisted throughout last year and this year. For simplicity, assume that there are no price, spending, and efficiency variances. Required: Compute

a. Operating income under absorption costing

Answer: $398,150

b. Operating income under variable costing

Answer: $386,750

c. The breakeven point under absorption costing

Answer: $194,783

d. The breakeven point under variable costing

Answer: $320,000

Answer 1

a)
	Income statement under absorption costing
	Sales Revenue		3246000
	(541000*6 per unit)
	Less:
	Production Cost
	Variable Cost		1623000
	(541000 units*3 per unit)
	Fixed Overhead		324600
	(541000/10 units *$6 per hour)
	Non Production Cost
	Variable Selling And Admin Exp		676250
	(541000*1.25 per unit)
	Fixed Selling And Admin Expenses		140000
	Net Income		482150
b)
	Income statement under variable costing
	Sales Revenue		3246000
	(541000*6 per unit)
	Less:
	Production Cost
	Variable Cost		1623000
	(541000 units*3 per unit)
	Fixed Overhead		420000
	Non Production Cost
	Variable Selling And Admin Exp		676250
	(541000*1.25 per unit)
	Fixed Selling And Admin Expenses		140000
	Net Income		386750
	Variable Selling And Admin Exp	18000
	Fixed Selling And Admin Expenses	53000
	Net Income		3970840
c)	The breakeven point under absorption costing
	Contribution Margin Ratio
	= (3246000-1623000-676250)/541000
	=1.75 per unit
	Break Even Point = Fixed Cost / Contribution per unit
	=((324600+140000)/1.75 per unit
	=265485 units
d)	The breakeven point under variable costing
	Break Even Point = Fixed Cost / Contribution per unit
	=(420000+140000)/1.75
	=320000 units