Question

1. Danahy Corporation manufactures a single product. The following data pertain to the company's operations over the last two years:

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	$	6,000

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:

	Total Company		Blue Division			Gold Division
Sales	$	522,000	$	391,000		$	131,000
Variable expenses		160,670		89,930			70,740
Contribution margin		361,330		301,070			60,260
Traceable fixed expenses		286,000		239,000			47,000
Segment margin		75,330	$	62,070		$	13,260
Common fixed expenses		73,080
Net operating income	$	2,250

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)

Answer 1

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)