Question

Integration Exercise 2 Different Costs for Different Purposes, Cost-Volume-Profit-Relationships [LO 1-1, LO 1-2, LO 1-3, LO 1-4, LO 1-5, LO 1-6, LO 5-1, LO 5-3, LO 5-5, LO 5-7, LO 5-8]

Hixson Company manufactures and sells one product for $34 per unit. The company maintains no beginning or ending inventories and its relevant range of production is 20,000 units to 30,000 units. When Hixson produces and sells 25,000 units, its unit costs are as follows:

	Amount Per Unit
Direct materials	$	8.00
Direct labor	$	5.00
Variable manufacturing overhead	$	1.00
Fixed manufacturing overhead	$	6.00
Fixed selling expense	$	3.50
Fixed administrative expense	$	2.50
Sales commissions	$	4.00
Variable administrative expense	$	1.00

Required:

1. For financial accounting purposes, what is the total amount of product costs incurred to make 25,000 units? What is the total amount of period costs incurred to sell 25,000 units?

2. If 24,000 units are produced, what is the variable manufacturing cost per unit produced? What is the average fixed manufacturing cost per unit produced? (Round your answers to 2 decimal places.)

3. If 26,000 units are produced, what is the variable manufacturing cost per unit produced? What is the average fixed manufacturing cost per unit produced? (Round your answers to 2 decimal places.)

4. If 27,000 units are produced, what are the total amounts of direct and indirect manufacturing costs incurred to support this level of production?

5. What total incremental manufacturing cost will Hixson incur if it increases production from 25,000 to 25,001 units? (Round your answer to 2 decimal places.)

6. What is Hixson’s contribution margin per unit? What is its contribution margin ratio? (Round "Contribution margin per unit" to 2 decimal places and "Contribution margin ratio" to 1 decimal place.)

7. What is Hixson’s break-even point in unit sales? What is its break-even point in dollar sales? (Do not round your intermediate values.)

8. How much will Hixson’s net operating income increase if it can grow production and sales from 25,000 units to 26,500 units?

9. What is Hixson’s margin of safety at a sales volume of 25,000 units? (Do not round your intermediate values.)

10. What is Hixson’s degree of operating leverage at a sales volume of 25,000 units? (Round your answer to 1 decimal places.)

Answer 1

1)	Total product costs incurred					500000
	Total period costs incurred					275000
2)	Variable manufacturing cost per unit produced					14		(DM+DL+VMOH)
	Average fixed manufacturing cost per unit produced					6.25		(150000/24000)
3)	Variable manufacturing cost per unit produced					14
	Average fixed manufacturing cost per unit produced					5.77		(15000/26000)
4)	Total direct manufacturing costs incurred					351000		(DM+DL)
	Total indirect manufacturing costs incurred					177000		(VMOH*units+FMOH)
5)	Total incremental manufacturing cost incurred					14
6)	Contribution margin per unit					15		(selling price - variable cost per unit)
	Contribution margin ratio					44.1%	%
7)	Break-even point in unit sales					20000	units	(fixed cost/CM per unit)
	Break-even point in dollar sales					680000		(BEP unit *selling price per unit)
8)	Increase in net operating income					22500		(addittional units*CM per unit)
9)	Margin of safety					170000		actual sales-BEP sales)
10)	Degree of operating leverage					5