Diego Company manufactures one product that is sold for $72 per unit in two geographic regions—East and West. The following information pertains to the company’s first year of operations in which it produced 43,000 units and sold 38,000 units. Variable costs per unit: Manufacturing: Direct materials $ 22 Direct labor $ 14 Variable manufacturing overhead $ 3 Variable selling and administrative $ 5 Fixed costs per year: Fixed manufacturing overhead $ 774,000 Fixed selling and administrative expense $ 346,000 The company sold 28,000 units in the East region and 10,000 units in the West region. It determined that $170,000 of its fixed selling and administrative expense is traceable to the West region, $120,000 is traceable to the East region, and the remaining $56,000 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. Please solve the following questions: What is the company’s total gross margin under absorption costing? What is the company’s net operating income (loss) under absorption costing? What is the difference between the variable costing and absorption costing net operating incomes (losses)?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Diego Company manufactures one product that is sold for $72 per unit in two geographic regions—East and West. The following information pertains to the company’s first year of operations in which it produced 43,000 units and sold 38,000 units.
| Variable costs per unit: | |
|---|---|
| Manufacturing: | |
| Direct materials | $ 22 |
| Direct labor | $ 14 |
| Variable manufacturing |
$ 3 |
| Variable selling and administrative | $ 5 |
| Fixed costs per year: | |
| Fixed manufacturing overhead | $ 774,000 |
| Fixed selling and administrative expense | $ 346,000 |
The company sold 28,000 units in the East region and 10,000 units in the West region. It determined that $170,000 of its fixed selling and administrative expense is traceable to the West region, $120,000 is traceable to the East region, and the remaining $56,000 is a common fixed expense. The company will continue to incur the total amount of its fixed
Please solve the following questions:
What is the company’s total gross margin under absorption costing?
What is the company’s net operating income (loss) under absorption costing?
What is the difference between the variable costing and absorption costing net operating incomes (losses)?
What is the company’s break-even point in unit sales?
If the sales volumes in the East and West regions had been reversed, what would be the company’s overall break-even point in unit sales?
What would have been the company’s variable costing net operating income (loss) if it had produced and sold 38,000 units?
What would have been the company’s absorption costing net operating income (loss) if it had produced and sold 38,000 units?
If the company produces 5,000 fewer units than it sells in its second year of operations, will absorption costing net operating income be higher or lower than variable costing net operating income in Year 2?
Prepare a contribution format segmented income statement that includes a Total column and columns for the East and West regions.
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