Chapter 5, Problem 1TF15

1.

To determine

Introduction: Break even analysis is used to determine the number of product or service a company has to sell to cover its total cost. Above the breakeven point the company will earn profit while below it the company will earn loss.

To calculate:Unit production cost under variable costing.

Answer to Problem 1TF15

Unit product cost is $40

Explanation of Solution

Unit production cost under variable costing:

  $\begin{array}{l}Variable\cos tingunitproduct\cos t=Directmatrials+Directlabor+\mathrm{var}iablemanufacturingoverhead\\ =\$24+\$14+\$2\\ =\$40\end{array}$

2.

To determine

Introduction: Break even analysis is used to determine the number of product or service a company has to sell to cover its total cost. Above the breakeven point the company will earn profit while below it the company will earn loss.

To prepare:Unit product cost under absorption

Answer to Problem 1TF15

Unit product cost is $60

Explanation of Solution

Unit product cost under absorption:

  $\begin{array}{l}Fixedmanufacturingoverhead=\frac{Fixedmanufacturingoverhead}{Unitproduced}\\ =\frac{\$800,000}{40,000}\\ =\$20\end{array}$

  $\begin{array}{l}Unitproductcostunderabsorption\cos ting=Directmatrials+Directlabor\\ +\mathrm{var}iablemanufacturingoverhead+fixedmanufacturingoverhead\\ =\$24+\$14+\$2+20\\ =\$60\end{array}$

3.

To determine

Introduction: Break even analysis is used to determine the number of product or service a company has to sell to cover its total cost. Above the breakeven point the company will earn profit while below it the company will earn loss.

To calculate: Contribution margin.

Answer to Problem 1TF15

Contribution margin $12600000

Explanation of Solution

Total contribution under variable costing:

Particular	Amount	Amount
Sales ($80\times 35000$)		2,800,000
Variable expense:
Variable cost of goods sold ($40\times 35000$)	1,400,000
Variable selling and administrative expense ($4\times 35000$)	140,000	15400000
Contribution margin		12600000

Contribution margin $12600000

4.

To determine

Introduction: Break even analysis is used to determine the number of product or service a company has to sell to cover its total cost. Above the breakeven point the company will earn profit while below it the company will earn loss.

To calculate:Net operating income under variable costing:

Answer to Problem 1TF15

Net operating loss $96000

Explanation of Solution

Net operating income under variable costing:

Particular	Amount	Amount
Sales ($80\times 35000$)		2,800,000
Variable expense:
Variable cost of goods sold ($40\times 35000$)	1,400,000
Variable selling and administrative expense ($4\times 35000$)	140,000	15400000
Contribution margin		12600000
Fixed expense: Fixed manufacturing overhead	800000
Fixed selling and administrative overhead	496000	1,296,000
Net operating loss		96,000

Net operating loss $96000

5.

To determine

Introduction: Break even analysis is used to determine the number of product or service a company has to sell to cover its total cost. Above the breakeven point the company will earn profit while below it the company will earn loss.

To calculate: Gross margin

Answer to Problem 1TF15

Gross margin $700000

Explanation of Solution

Gross margin under absorption costing:

Particular	Amount	Amount
Sales ($80\times 35000$)		2,800,000
Cost of goods sold (35000)	2,100,000
Gross margin		700,000

Gross margin $700000

6.

To determine

Introduction: Break even analysis is used to determine the number of product or service a company has to sell to cover its total cost. Above the breakeven point the company will earn profit while below it the company will earn loss.

To calculate: breakeven point in sales and dollar.

Answer to Problem 1TF15

Net operating loss $59600

Explanation of Solution

Net operating income under variable costing:

Particular	Amount	Amount
Sales ($80\times 35000$)		2,800,000
Cost of goods sold (35000)	2,100,000
Gross margin		700,000
Selling and administrative expense
Fixed manufacturing overhead		800,000
Fixed selling and administrative expense		496,000
Net operating loss		596,000

Net operating loss $59600

7.

To determine

Introduction: Break even analysis is used to determine the number of product or service a company has to sell to cover its total cost. Above the breakeven point the company will earn profit while below it the company will earn loss.

To calculate:The different between net operating income using variable costing and absorption

Answer to Problem 1TF15

The different between net operating income using variable costing and absorption is (500000)

Explanation of Solution

The different between net operating income using variable costing and absorption:

  $\begin{array}{l}differentbetweennetoperatingincomeusingvariablecostingandabsorption=Netoperatingincomeu\sin gabsorption\cos ting-Netoperatingincomeu\sin g\mathrm{var}iable\cos ting\\ =596000-96000\\ =(500000)\end{array}$

8.

To determine

Introduction: Break even analysis is used to determine the number of product or service a company has to sell to cover its total cost. Above the breakeven point the company will earn profit while below it the company will earn loss.

To calculate: Break even.

Answer to Problem 1TF15

Breakeven 4166.66 unit

Explanation of Solution

Breakeven point in sales:

  $\begin{array}{l}Breakevensalesunit=\frac{250,000}{Contributionm\mathrm{argin}perunit}\\ =\frac{150,000}{60}\\ =4166.66units\end{array}$

9.

To determine

Introduction: Break even analysis is used to determine the number of product or service a company has to sell to cover its total cost. Above the breakeven point the company will earn profit while below it the company will earn loss.

To calculate: Breakeven

Answer to Problem 1TF15

Breakeven 4166.66 unit

Explanation of Solution

Breakeven point in sales:

  $\begin{array}{l}Breakevensalesunit=\frac{250,000}{Contributionm\mathrm{argin}perunit}\\ =\frac{150,000}{60}\\ =4166.66units\end{array}$

10.

To determine

Introduction: Break even analysis is used to determine the number of product or service a company has to sell to cover its total cost. Above the breakeven point the company will earn profit while below it the company will earn loss.

To calculate:Company’s variable net operating income will be same.

Answer to Problem 1TF15

Company’s variable net operating income will be same

Explanation of Solution

Company’s variable net operating income will be same as the net variable income is calculated considering only variable expense.

11.

To determine

Introduction: Break even analysis is used to determine the number of product or service a company has to sell to cover its total cost. Above the breakeven point the company will earn profit while below it the company will earn loss.

To calculate:Company’s absorption net operating income

Answer to Problem 1TF15

Company’s absorption net operating income will be same

Explanation of Solution

Company’s absorption net operating income will be same as company’s fixed selling and administrative expense will be same.

12.

To determine

Introduction: Break even analysis is used to determine the number of product or service a company has to sell to cover its total cost. Above the breakeven point the company will earn profit while below it the company will earn loss.

To calculate: breakeven point in sales and dollar.

Answer to Problem 1TF15

If the company produce 5000 less units next year absorption costing income for next year will be higher than absorption income for this year.

Explanation of Solution

If the company produce 5000 less units next year absorption costing income for next year will be higher than absorption income for this year.

13.

To determine

Introduction: Break even analysis is used to determine the number of product or service a company has to sell to cover its total cost. Above the breakeven point the company will earn profit while below it the company will earn loss.

To calculate: breakeven point in sales and dollar

Answer to Problem 1TF15

Net operating loss

442857.14

27142.80

Explanation of Solution

Net operating income under variable costing:

Particular	Amount East	Amount West
Sales	$25000\times 80=2000,000$	$10000\times 80=800000$
Cost of goods sold	$25000\times 60=1500000$	$10000\times 60=600000$
Gross margin	500000	200000
Selling and administrative expense
Fixed manufacturing overhead	57142.857	22857.14
Fixed selling and administrative expense	96,000	150,000
Net operating loss	442857.14	27142.80

14.

To determine

Introduction: Break even analysis is used to determine the number of product or service a company has to sell to cover its total cost. Above the breakeven point the company will earn profit while below it the company will earn loss.

To calculate:net operating income of east region increases by 5%

Answer to Problem 1TF15

If the net operating income of east region increases by 5% in second year D should drop west region and concentrate on east region only.

Explanation of Solution

If the net operating income of east region increases by 5% in second year D should drop west region and concentrate on east region only.

15.

To determine

Introduction: Break even analysis is used to determine the number of product or service a company has to sell to cover its total cost. Above the breakeven point the company will earn profit while below it the company will earn loss.

To calculate: Net profit will increase if the company sale increases

Answer to Problem 1TF15

Net profit will increase if the company sale increases

Explanation of Solution

Increase in sales will be

  $\begin{array}{l}20\%\times 10000\\ =2000\end{array}$

New sales in unit will be $10,000+2000=12,000$

Net operating income under variable costing:

Particular	Amount West
Sales	$12000\times 80=960000$
Cost of goods sold	$12000\times 60=720000$
Gross margin	240000
Selling and administrative expense
Fixed manufacturing overhead	22857.14
Fixed selling and administrative expense	150,000
Advertisement	30,000
Net operating loss	28142.80

Net profit will increase if the company sale increases