Question

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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.

  

Variable costs per unit:
Manufacturing:
Direct materials	$	20
Direct labor	$	10
Variable manufacturing overhead	$	2
Variable selling and administrative	$	4
Fixed costs per year:
Fixed manufacturing overhead	$	984,000
Fixed selling and administrative expenses	$	308,000

  

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.

   

1.

value:
1.00 points

Required information

Required:
1.	What is the unit product cost under variable costing?

  
      

References

eBook & Resources

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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2.

value:
1.00 points

Required information

2.	What is the unit product cost under absorption costing?

  
      

References

3.

value:
1.00 points

Required information

3.	What is the company’s total contribution margin under variable costing?

  
  

4.

value:
1.00 points

Required information

4.	What is the company’s net operating income (loss) under variable costing?

  
      

  

Answer 1

	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