Question

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Grange Manufacturing Company had net income of $300,000 in 2017 when the selling price per unit...

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.

Solutions

Expert Solution

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.

ekkarill92 answered 2 years ago
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