Chapteror Required information The Foundational 15 [LO6-1, LO6-2, LO6-3, LO6-4,
ID: 2516568 • Letter: C
Question
Chapteror Required information The Foundational 15 [LO6-1, LO6-2, LO6-3, LO6-4, LO6-5 The following information applies to the questions displayed below.] Part 5 of 15 Diego Company manufactures one product that is sold for $81 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 52,000 units and sold 47000 units points Variable costs per unitr Manufacturing: Direct saterials 20 20 eBook Direct labor Variable manufacturing overhead Variable selling and administrative Pixed costs per year Print Fixed manufacturing overhead Pixed selling and administrative expense552.000 $ 936,000 References The company sold 35,000 units in the East region and 12,000 units in the West region. It determined that $260.000 of its fixed selling and administrative expense is traceable to the West region, $210,000 is traceable to the East region, and the remaining $82.000 is a common fixed expense. 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 Foundational 6-5 5. What is the company's total gross margin under absorption costing? .
Explanation / Answer
Question 6.5
Explanation
Under absorption costing approach, we calculate the cost of manufacture for 52000 units produced and deduct the unsold ( ending inventory) goods value from it to get the cost of goods sold. The detailed calculation is as under
Question - 6,6
For determining the net Inocme or loss, we have to deduct operating expense ( ie selling and administrative expenses) from the gross margin
Question - 6.7
Explanation
Variable costing Net operating Income or loss is calculated as under
Interesting point : The reason for the difference between the two profits is always due to the fixed manufacturing cost involved in the ending inventory. i.e ........ 5000 units * 936000 / 52000 units = 90000
Question 6.8
Break even point = Fixed cost / Contribution margin per Unit
= [ 936000 + 552000 ] / (81 - 50) = 1488000 / 31 = 48000 Units
Question 6.9
BEP is above the actual sales.
Sales = 47000 * 81 3807000 (-) Cost of goods sold 2914000 Gross profit margin 893000