1What is the companys total gross margin under absorption co

1.What is the company’s total gross margin under absorption costing?

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

3.What is the amount of the difference between the variable costing and absorption costing net operating incomes (losses)?

Variable costing net operating income

Absorbtion costing net operating income

4. What is the company’s break-even point in unit sales? Is it above or below the actual sales volume?

[The following information applies to the questions displayed below.] Diego Company manufactures one product that is sold for $77 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 48,000 units and sold 43,000 units Variable costs per unit: Manufacturing 27 Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative 12 5 $ 864,000 Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expenses $ 456,000 sold 33,000 units in the East region and The company $220,000 of its fixed selling and administrative expenses is traceable to the West region, $170,000 is traceable to the East region, and the remaining $66,000 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. 10,000 units in the West region. It determined that

Solution

Calculation of gross margin under absorption costing Particulars Amount Sales(77*43000)    3,311,000.00 Less: COGS(27+12+3+(864000/48000))*43000    2,580,000.00 Gross Margin       731,000.00 Calculation of net operating income under absorption costing Particulars Amount Sales(77*43000)    3,311,000.00 Less: COGS(27+12+3+(864000/48000))*43000    2,580,000.00 Gross Margin       731,000.00 Less: Selling & Adm exp(43000*5)+456000       671,000.00 Net Operating Income under absorption costing         60,000.00 Calculation of net operating income under Variable Costing Particulars Amount Sales(77*43000)    3,311,000.00 Less: variable COGS(27+12+3)*43000    1,806,000.00 Less: variable selling & adm exp (5*43000)       215,000.00 Contribution Margin(3311000-1806000-215000) 1,290,000.00 Less: Fixed Expenses Fixed Manf OH       864,000.00 Fixed selling & adm exp       456,000.00 Net Operating loss under variable costing(1290000-864000-456000)       (30,000.00) Calculation of difference in Net operating income/loss bw absorption and variable costing systems Particulars Amount Net Operating Income under absorption costing         60,000.00 Net Operating loss under variable costing        (30,000.00) Difference         90,000.00 Calculation of breakeven point in units = Fixed cost/Contribution per unit Particulars Amount Fixed Cost(864000+456000)    1,320,000.00 Contribution per unit (77-27-12-3-5)                 30.00 Breakeven point in units(1320000/30)         44,000.00