6-1.

) Ida Sidha Karya Company is a family-owned company located in the cillage of Gianyar on the island of Bali in Indonesi
company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a
xylophone. The gamelans are sold for $ 850.00 Select data for the company's operations last year follow:

Units in beginning inventory….. -

Units Produced……………………… 250
Units Sold………………………………. 225
Units in ending inventory……… 25
Variable cost per unit…………….
Direct materials…………………….. $ 100
Direct labor……………………………. $ 320
Variable manufacturing OH…… $ 40
Variable S&A………………………….. $ 20
Fixed costs……………………………..
Fixed manufacturing OH…………. $ 60,000
Fixed S&A………………………………. $ 20,000

1.) Assume that the company uses absorption costing. Compute the unit product cost for one gamelan.

Direct materials $ 100

Direct Labor $ 320
Variable manufacturing OH $ 40
Fixed manufacturing OH / PU $ 240 Fixed manufacturing OH ÷ Units Produced
Absorption CPU $ 700

2.) Assume that the company uses variable costing. Compute the unit product cost for one gamelan

Direct materials $ 100

Direct Labor $ 320
Variable manufacturing OH $ 40
Variable CPU $ 460

6-2.) Refer to the data in Exercise 6-1 for Ida Sidha Karya Company. The absorption costing income statement prepared by
company's accountant for the last year appears below:

Sales………………………………………. $ 191,250
Cost of Goods Sold………………… $ 157,500
Gross Margin………………………….. $ 33,750
Selling and Admin Expenses…. $ 24,500
Net Operating Income…………… $ 9,250

1.) Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to
next period.

Total fixed manufacturing overhead $ 60,000

Manufacturing overhead per unit $ 240
 Ending Inventory $ 25
Fixed manufacturing OH for 25 units $ 6,000

2.) Prepare an income statement for the year using variable costing. Explain the difference in net operating income betw
the two costing methods.

Amount In
Sales (225 units X $850pu)…………………………………………………………………………..
LESS: VARIABLE COST:
Direct Materials (225 units X $100pu) $ 22,500
Direct Labor (225 units X $320) $ 72,000
Manufacturing Overhead (225 units X $40pu) $ 9,000
Selling & Administrative (225 units X $20pu) $ 4,500
Total Variable Cost
Contribution Margin (Total Sales - Total Variable Cost)
LESS: FIXED COSTS:
Fixed manufacturing Overhead $ 60,000
Fixed Selling & Administrative $ 20,000
Total Fixed Cost
Net Operating Income

The differences in net operating incomes of variable and absorption costing is ending inventory valuation.In ending
valuation, fixed cost is considered under absorption costing. But under variable costing, fixed cost is not considered.

6-3.)
Jorgansen Lighting, INC., manufactures heavy-duty street systems for municipalities. The company uses variable costi
internal management reports and absorption costing for external reports to shareholders, creditors and the governm
The company has provided the following data:

Inventories: Year 1 Year 2 Year 3

Beginning (units)…………………………………….. 200 170 180
Ending (units)………………………………………….. 170 180 220
Variable costing net operating income….. $ 1,080,400 $ 1,032,400 $ 996,400

The company's fixed manufacturing overhead per unit was constant at $ 560 for all three years

1.) Determine each year's absorption costing net operating income. Present your answer in the form of a
reconciliation report.

Year 1 Year 2 Year 3

Beginning (units)…………………………………….. 200 170 180
Ending (units)………………………………………….. 170 180 220
Change in Inventories…………………………….. (30) 10 40

Fixed MOH in beginning inventories…….. 112,000 95,200 100,800

Fixed MOH in ending inventories………….. 95,200 100,800 123,200
Fixed MOH deferred in inventories………. (16,800) 5,600 22,400
 Variable costing net operating income $ 1,080,400 $ 1,032,400 $ 996,400

Add fixed MOH cost released from inventory under

absorption costing (16,800) 5,600 22,400

Absorption costing net operating income $ 1,063,600 $ 1,038,000 $ 1,018,800

2.) In year 4, the company's variable costing net operating income was $ 984,400
costing net operating income was $ 1,012,400 Did inventories increase or decrease during ye
How much fixed manufacturing overhead cost was deferred or released from inventory during year 4?

$ 28,000 The amount of deferral is the difference between the two net operating incomes

6-4.) Royal Lawncare Company produced and sells two packaged products, Weedban and Greengrow. Revenue and cost
information relating to the products follow:

Product
Weedban Greengrow
Selling price per unit………………………………. $ 6.00 $ 7.50
Variable expense per unit……………………… $ 2.40 $ 5.25
Traceable fixed expenses per year………… $ 45,000 $ 21,000

Common fixed expenses in the company total 33,000 annually. Last year the company produced and
15,000 units of Weedban and 28,000 units of Greengrow.

1.) Prepare a contribution format income statement segmented by product lines.

Total Weedban Greengrow

Sales………………………………………. $ 300,000 $ 90,000 $ 210,000
Variable Expenses…………………. $ 183,000 $ 36,000 $ 147,000
Contribution Margin……………… $ 117,000 $ 54,000 $ 63,000
Traceable Fixed Expenses…….. $ 66,000 $ 45,000 $ 21,000
Product Line Segment Margin.. $ 51,000 $ 9,000 $ 42,000
Common Fixed Expenses not
$ 33,000
traceable to products…………….
Net Operating Income………….. $ 18,000

6-5.) Piedmont Company segments itsbusienss into two regions: North and South. The company prepared the contribution
format segmented income statement shown below:

Total Company North South

Sales………………………………………. $ 600,000 $ 400,000 $ 200,000
Variable expenses………………… $ 360,000 $ 280,000 $ 80,000
Contribution margin……………… $ 240,000 $ 120,000 $ 120,000
Traceable fixed expenses…….. $ 120,000 $ 60,000 $ 60,000
Segment margin……………………. $ 120,000 $ 60,000 $ 60,000
 Common fixed expenses………. $ 50,000
Net operating income…………… $ 70,000

1.) Compute the companywide break-even point in dollar sales.

Fixed Cost
Break-even Point in Dollars =
Contribution Margin Ratio

$120,000 + $ 50,000
$ 425,000 =
$240,000 ÷ $600,000

2.) Compute the break-even point in dollar sales for the North Region.

Contrabution Margin Contrabution

= x 100
Ratio Sales

$ 120,000
30% = x 100
$ 400,000

Fixed Cost
Break-even Point in Dollars =
Contribution Margin Ratio

$ 60,000
$ 200,000 =
30%

3.) Compute the break-even point in dollar sales for the South region.

Contrabution Margin Contrabution

= x 100
Ratio Sales

$ 120,000
60% = x 100
$ 200,000

Fixed Cost
Break-even Point in Dollars =
Contribution Margin Ratio

$ 60,000
$ 100,000 =
60%

6-6.) Lyncy Company manufactured and sells a single product. The following costs were incurred during the company's firs
of operations:

Variable cost per unit:

Manufacturing: -
Direct Materials……………………… $ 6.00
Direct Labor……………………………. $ 9.00
 Variable Manufactureing OH… $ 3.00
Variable S&A: $ 4.00
Fixed costs per yr: -
Fixed Manufacturing OH……….. $ 300,000
Fixed S&A………………………………. $ 190,000

During the year, the company produced $ 25,000 units and sold $ 20,000 units. The selling
price of the company's product is $ 50.00 per unit.

1.) Assume that the company uses absorption costing:

a) Compute the unit product cost

Direct Materials………………………………………………………. $ 6.00

Direct Labor…………………………………………………………….. $ 9.00
Variable Manufacturing Overhead…………………………. $ 3.00
Total Variable Costs………………………………………………… $ 18.00
Fixed MOH PU ($300,000 ÷ 25,000 units)…………………. $ 12.00
Absorption Costing Unit Product Cost……………………. $ 30.00

b) Prepare an absorption income statement for the year

Sales (20,000 units x $50 per unit)………………………………………………………………………………. $ 1,000,000

Cost of Goods Sold (20,000 units x $30 per unit)………………………………………………………… $ 600,000
Gross Margin……………………………………………………………………………………………………………….. $ 400,000
Selling and Administrative Expense (20,000 units x $4 per unit) + $190,000…………….. $ 270,000
Net Operating Income………………………………………………………………………………………………… $ 130,000

2.) Assume that the company uses variable costing:

a) Compute the unit product cost

Direct Materials………………………………………………………. $ 6.00

Direct Labor…………………………………………………………….. $ 9.00
Variable Manufacturing Overhead…………………………. $ 3.00
Total Variable Costs………………………………………………… $ 18.00

b) Prepare an variable costing income statement for the year

Sales (20,000 units x $50 per unit)………………………………………………………………………………. $ 1,000,000

Variable Cost of Goods Sold (20,000 units x $18 per unit)…………………………………………. $ 360,000
Variable Selling Expense (20,000 units x $4 per unit)………………………………………………… $ 80,000
Contrabution Margin ($1,000,000 - $360,000 - $80,000)……………………………………………… $ 560,000
Fixed Manuacturing Overhead…………………………………………………………………………………… $ 300,000
Fixed Selling and Administrative Expense…………………………………………………………………. $ 190,000
Net Operating Income ($560,000 - $300,000 - $190,000)…………………………………………….. $ 70,000
6-8) Parker Products Inc, a manufacturer, reported $ 123,000,000 in sales and a loss of
in its annual report to shareholders. According to a CVP analysis prepared for management, the company's
break-even point is $ 115,000,000 in sales

1.) Assuming that the CVP analysis is correct, is it likely that the company's inventory level increases, decreased or reman
unchanged during the year? Explain

The company's break-even sales under cost-volume-profit (CVP) analysis is $115 million. Which means that at a sales
volume of $115 million the company is able to cover both fixed and variable costs and every dollar it earns over this po
results in profit to the company. Whereas, the company reported an operating loss of $18 million in its annual report in
of having a sales revenue of $123 million. This is because under the absorption costing method, which the company is
required to use under US GAAP, the company is reporting a net operating loss of $10 million ($123 + $18 ? $115). Thi
operating loss of $10 million is likely the fixed manufacturing overhead cost in inventory released during the year due t
decrease in inventory levels from the previous year.

6-9) Walsh Company manufactured and sells one product. The following information pertains to each of the company's fir
years of operations:

Variable cost per unit:

-
Manufacturing:
Direct Materials……………………… $ 25.00
Direct Labor……………………………. $ 15.00
Variable Manufactureing OH… $ 5.00
Variable S&A: $ 2.00
Fixed costs per yr: -
Fixed Manufacturing OH……….. $ 250,000
Fixed S&A………………………………. $ 80,000

During its first year of operations, walsh produced 50,000 units and sold 40,000
second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of t
Company's product $ 60.00 per unit.

1.) Assume the company uses variable costing:

a.) Compute the unit product cost for year 1 and year 2 using variable costing

Year 1 Year 2
Direct Materials………………………………………………………. $ 25.00 $ 25.00
Direct Labor…………………………………………………………….. $ 15.00 $ 15.00
Variable Manufacturing Overhead…………………………. $ 5.00 $ 5.00
Total Variable Costs………………………………………………… $ 45.00 $ 45.00

b.) Preare a variable costing income statement for year 1 and year 2
Year 1
Sales…………………………………………………………………………………………………………… $ 2,400,000
Variable Cost of Goods Sold………………………………………………………………………. $ 1,800,000
Variable Selling Expense ………………………………………………………………………….. $ 80,000
Contrabution Margin…………………………………………………………………………………. $ 520,000
 Fixed Manuacturing Overhead………………………………………………………………….. $ 250,000
Fixed Selling and Administrative Expense………………………………………………… $ 80,000
Net Operating Income……………………………………………………………………………….. $ 190,000

2.) assume the company uses absorption costing

a.) Compute the unit product cost for year 1 and year 2 using abosrption costing:

Year 1 Year 2
Direct Materials………………………………………………………. $ 25.00 $ 25.00
Direct Labor…………………………………………………………….. $ 15.00 $ 15.00
Variable Manufacturing Overhead…………………………. $ 5.00 $ 5.00
Total Variable Costs………………………………………………… $ 45.00 $ 45.00
Fixed MOH PU……………………………………...…………………. $ 5.00 $ 6.25
Absorption Costing Unit Product Cost……………………. $ 50.00 $ 51.25

b.) Preare an absorption costing income statement for year 1 and year 2

Year 1 Year 2
Sales……………………………………… $ 2,400,000 $ 3,000,000
COGS: - -
Beginning Inventory……………… - $ 500,000
Cost of Goods Manufactured… $ 2,500,000 $ 2,050,000
Less: Ending Inventory………….. $ 500,000
Cost of Goods Sold………………… $ 2,000,000 $ 2,550,000
Gross Margin…………………………. $ 400,000 $ 450,000
Selling & Admin Expense……… $ 160,000 $ 180,000
Income From Operations……… $ 240,000 $ 270,000

3.) Explain the difference between variable costing and absorption costing net operation income in year 1. Also, explain w
the two net operating income figures differ in year 2

6-10) Crossfire Company segments its business into two regions: East and West. The company prepared the contribution fo
sefmented income statement shown below:

Total Company East West

Sales………………………………………. $ 900,000 $ 600,000 $ 300,000
Variable expenses…………………. $ 675,000 $ 480,000 $ 195,000
Contribution margin……………… $ 225,000 $ 120,000 $ 105,000
Traceable fixed expenses……… $ 141,000 $ 50,000 $ 91,000
Segment margin……………………. $ 84,000 $ 70,000 $ 14,000
Common fixed expenses………. $ 59,000
Net operating income…………… $ 25,000
1.) Compute the companywide break-even point dollar in sales.

Fixed Cost
Break-even Point in Dollars =
Contribution Margin Ratio

$141,000 + $ 59,000
$ 800,000 =
$225,000 ÷ $900,000

2.) Compute the break-even point in dollar sales for the East Region.

Contrabution Margin Contrabution

= x 100
Ratio Sales

$ 120,000
20% = x 100
$ 600,000

Fixed Cost
Break-even Point in Dollars =
Contribution Margin Ratio

$ 50,000
$ 250,000 =
20%

3.) Compute the break-even point in dollar sales for the West Region.

Contrabution Margin Contrabution

Ratio = x 100
Sales

$ 105,000
35% = x 100
$ 300,000

Fixed Cost
Break-even Point in Dollars =
Contribution Margin Ratio

$ 91,000
$ 260,000 =
35%

4.)
Prepare a new segmented income statement based on the break-even dollar sales that you computed in requiremen
3. Use the same format as shown above. What is Crossfire's net operating income in your new segmented income
statement?
East West Total Company
Break even dollar sales…………. $ 250,000 $ 260,000 $ 510,000
Less: Variable Costs ………………
Contribution Margin………………
Fixed Costs…………………………….
Segmant Margin…………………….
5.) Do you think that Crossfire shold allocate its commin fixed expenses to the East and West regions when computing th
break-even points for each region? Why?

6-11) Wingate Company, a wholesale distributor of electronic equipment, has been experiencing losses for some time, as s
by its most recent monthly contribution format income statement, which follows:

Sales………………………………………. $ 1,000,000
Variable Expenses…………………. $ 390,000
Contribution Margin……………… $ 610,000
Fixed Expenses……………………… $ 625,000
Net Operating Income………….. $ (15,000)

In an effort to isolate the problem, the president has asked for an income statement segmented by division. Accordin
the accounting department has developed the following information:

Division
East Central West
Sales………………………………………. $ 250,000 $ 400,000 $ 350,000
Var expenses as a % of Sales… 52% 30% 40%
Traceable Fixed Expenses…….. $ 160,000 $ 200,000 $ 175,000

1.) Prepare a contrabution format income statement segmented by divisions, as desired by the president.

Total Company East Division Central Division

Sales………………………………………. $ 1,000,000 $ 250,000 $ 400,000
Variable Exenses…………………… $ 390,000 $ 130,000 $ 120,000
Contribution Margin……………… $ 610,000 $ 120,000 $ 280,000
Traceable Fixed Expenses…….. $ 535,000 $ 160,000 $ 200,000
Divisional Segment Margin…… $ 75,000 $ (40,000) $ 80,000
Fixed Exp not Traceable to Divisions……. $ 90,000
Net Operating Income………….. $ (15,000)

2.) As a result of a marketing study, the president believed that sales in the West Division could be increased by
20% if monthly advertising in that division were increased by $ 15,000 . Would you recommend
the increased advertising? Show computations to support your answer.
 Incremental Sales ($350,000 X 20%)……………………….. $ 70,000
Contribution Margin Ration ($210,000 ÷ $350,000)…. 60%
Incremental Contribution Margin (20% x $210,000).. $ 42,000
Less Incremental Advertising Expense…………………… $ 15,000
Incremental Operating Income………………………………. $ 27,000 Yes

6-14.) Chuck Wagon Grills, INC., makes a single product: a handmade speciality barbecue grill that it sells for
Data for last year's operations follow:

Units in beginning inventory…………………. -

Units Produced……………………………………….. $ 20,000
Units Sold……………………………………………….. $ 19,000
Units in ending inventory………………………. $ 1,000
Variable cost per unit: -
Direct Materials……………………………………… $ 50
Direct Labor……………………………………………. $ 80
Variable manufacturing overhead………… $ 20
Variable selling and administrative………. $ 10
Total variable cost per unit……………………. $ 160
Fixed Costs: -
Fixed manufacturing overhead……………… $ 700,000
Fixed selling and administrative……………. $ 285,000
Total fixed costs……………………………………… $ 985,000

1.) Assume that the company uses variable costing. Compute the unit product cost for one barbecue grill.

Total Fixed Cost Units Sold Fixed Cost Per Unit

÷ =
$ 985,000 $ 19,000 $ 51.84

Total Variable Cost Fixed Cost Per Unit Total Product CPU
+ =
$ 160 $ 51.84 $ 211.84

2.) Asume that the company uses variable costing. Prepare a contribution format income statement for the year.

Sales………………………………………. $ 3,990,000
Less Variable Cost………………….. $ 3,040,000
Contribution………………………….. $ 950,000
Less: Fixed Cost…………………….. $ 985,000.00
Net Income……………………………. $ (35,000.00)

3.) What is the company's break-even point in terms of the number of barbecue grills sold?

Contrabution Margin Contrabution

= x 100
Ratio Sales

$ 950,000
24% = x 100
$ 3,990,000
 Fixed Cost
Break-even Point in Dollars =
Contribution Margin Ratio

$ 985,000
$ 4,137,000 =
24%

6-16.)
Raner, Harris, & Chan is a consulting firm that specializes in information systems formedical and dental clinics. The fir
two offices: one in Chicago and one in Minneapolis. The firm classifies the direct costs of consulting jobs as variable co
contribution format segmented income statement for the company's most recent year is given below:
Total Company Chicago Minneapolis
Sales………………………………………. $ 450,000 100% $ 150,000 100% $ 300,000 100%
Variable Expenses…………………. $ 225,000 50% $ 45,000 30% $ 180,000 60%
Contribution Margin……………… $ 225,000 50% $ 105,000 70% $ 120,000 40%
Traceable Fixed Expenses…….. $ 126,000 28% $ 78,000 52% $ 48,000 16%
Office Segment Margin…………. $ 99,000 22% $ 27,000 18% $ 72,000 24%
Fixed Exp not Traceable to Office… $ 63,000 14%
Net Operating Income………….. $ 36,000 8%

1.)
Compute the companywide break-even point in dollar sales. Also, compute the break-even point for the Chicago offi
and for the Minneapolis office. Is the companywide break-even point greater than, less than, or equal to the sum of t
Chicago and Minneapolis break even points? Why?

Company Wide Break-even Fixed Cost

Point in Dollars =
Contribution Margin Ratio

$126,000 + $ 63,000
$ 378,000 =
$225,000 ÷ $450,000

Contrabution Margin Contrabution

= x 100
Ratio Sales

$ 105,000
70% = x 100
$ 150,000

Chicago Break-even Point in Fixed Cost

=
Dollars Contribution Margin Ratio

$ 78,000
$ 111,429 =
70%

Contrabution Margin Contrabution

= x 100
Ratio Sales
 $ 120,000
40% = x 100
$ 300,000

Minneapolis Break-even Point Fixed Cost

=
in Dollars Contribution Margin Ratio

$ 48,000
$ 120,000 =
40%

2.) By how much would the company's net operating income increase if Minneapolis increased its sales by
per year? Assume no change in cost behavior patterns.

Total Company Chicago Minneapolis

Sales………………………………………. $ 525,000 100.00% $ 150,000 100.00% $ 375,000 100.00%
Variable Expenses…………………. $ 270,000 51.43% $ 45,000 30.00% $ 225,000 60.00%
Contribution Margin……………… $ 255,000 48.57% $ 105,000 70.00% $ 150,000 40.00%
Traceable Fixed Expenses…….. $ 126,000 24.00% $ 78,000 52.00% $ 48,000 12.80%
Office Segment Margin…………. $ 129,000 24.57% $ 27,000 18.00% $ 102,000 27.20%
Fixed Exp not Traceable to Office… $ 63,000 12.00%
Net Operating Income………….. $ 66,000 12.57%

3.) Refer to the origional data. Assume that sales in Chicago increase by $ 50,000 next year and that sale
Minneapolis remain unchanged. Assume no change in fixed xosts.

a) Prepare a new segmented income statement for the company using the above format. Show both amounts and
percentages.

Total Company Chicago Minneapolis

Sales………………………………………. $ 500,000 100.00% $ 200,000 100.00% $ 300,000 100.00%
Variable Expenses…………………. $ 240,000 48.00% $ 60,000 30.00% $ 180,000 60.00%
Contribution Margin……………… $ 260,000 52.00% $ 140,000 70.00% $ 120,000 40.00%
Traceable Fixed Expenses…….. $ 126,000 25.20% $ 78,000 52.00% $ 48,000 16.00%
Office Segment Margin…………. $ 134,000 26.80% $ 62,000 18.00% $ 72,000 24.00%
Fixed Exp not Traceable to Office… $ 63,000 12.60%
Net Operating Income………….. $ 71,000 14.20%

b) Observe from the income statement you have prepared that the contribution margin ratio for Chicago has
remained unchanged at 70% (the same as in tha above data) but that the segment margin ratio
has changed. How do you explain the change in the segment margin ratio?
6-18A) Haas Company manufactured and sells one product. The following information pertains to each of the company's firs
years of operations:

Variable Costs Per Unit:

Manufacturing:
Direct Materials…………………………………………… $ 20.00
Direct Labor………………………………………………… $ 12.00
Variable Manufacturing Overhead………… $ 4.00
Variable Selling and Amdministrative…… $ 2.00
Fixed Costs Per Year:
Fixed Manufacturing Overhead……………… $ 960,000
Fixed Selling and Amdministrative……….. $ 240,000

During its first year of operations, Haas produced 60,000 and sold 60,000 units. During its secont
of operations, it produced 75,000 units and sold 50,000 units. In its third year, Haas produ
40,000 units and sold 65,000 units. He selling price of the company's product is

1.) Compute the company's break even point in units sold

Fixed Cost
Break-even Point in Units =
Contribution per unit

$960,000 + $ 240,000
$ 60,000 =
$ 58 - $ 38

2.) Assume the company uses variable costing

a.) Compute the unit product cost for year 1, year 2 & year 3
b.) Prepare an income statement for year 1, year 2, & year 3.

Direct Materials…………………………………………… $ 20
Direct Labor………………………………………………… $ 12
Variable Manufacturing Overhead………… $ 4
Variable Costing Unit Product Cost………… $ 36

Year 1 Year 2 Year 3

Beginning Inventory………………………………. - $ - $ 25,000
Add: Produced………………………………………… $ 60,000 $ 75,000 $ 40,000
Less: Sold………………………………………………… $ 60,000 $ 50,000 $ 65,000
Ending Inventory…………………………………….. $ - $ 25,000 $ -

Per Unit Year 1 Year 2

Direct Material……………………………………….. $ 20.00 1,200,000 $ 1,500,000
Direct Labor…………………………………………….. $ 12.00 $ 720,000 $ 900,000
Variable Manufacturing Cost………………….. $ 4.00 $ 240,000 $ 300,000
Fixed Manufacturing Cost:
Add: Opening Stock…………………………………
 Less: Closing Stock (25000 X 36)……………… $ 900,000
Cost of Goods Sold………………………………….. $ 2,160,000 $ 3,600,000

Per Unit Year 1 Year 2

Sales………………………………………………………… $ 58.00 3,480,000 $ 2,900,000
Less: Variable Cost:
Cost of Goods Sold…………………………………..
Gross Profit………………………………………………
Less; Variable Selling and Admin……………
Less Fixed Expenses Selling and Admin…
Net Income……………………………………………..

3.) Assume the company uses absorption costing:

a.) Compute the unit product cost for year 1, year 2 & year 3

Per Unit Year 1 Per Unit Year 2

Direct Material……………………………………….. $ 20.00 $ 1,200,000 $ 20.00 $ 1,500,000
Direct Labor…………………………………………….. $ 12.00 $ 720,000 $ 12.00 $ 900,000
Variable Manufacturing Cost………………….. $ 4.00 $ 240,000 $ 4.00 $ 300,000
Fixed Manufacturing Overheads 16.00 $ 960,000 12.80 $ 960,000
Total Cost of Goods Produced………………… $ 52.00 $ 3,120,000 $ 48.80 $ 3,660,000
Add: Opening Stock…………………………………
Less Closing Stock…………………………………… $ 1,220,000
Cost of Goods Sold…………………………………. $ 3,120,000 $ 2,440,000

b.) Prepare an income statement for year 1, year 2, & year 3.

4.) Compare the net operating income figures that you computed in requirements 2 & 3 to the break-even point that you
computed in requirement 1. Which net operating income figures seem counterintuirive? Why?
he island of Bali in Indonesia. The
ilar to a
rations last year follow:

gamelan.

amelan

ome statement prepared by the

st deferred in inventory to the

 net operating income between

Amount In
$ 191,250

$ 108,000
$ 83,250

$ 80,000
$ 3,250

ntory valuation.In ending

ed cost is not considered.

ompany uses variable costing for

creditors and the government.

Year 3
180
220
$ 996,400

for all three years

he form of a

Year 3
180
220
40

100,800
123,200
22,400
 $ 996,400

22,400

$ 1,018,800

and its absorption

ease or decrease during year 4?
ring year 4?

ating incomes

ngrow. Revenue and cost

he company produced and sold

y prepared the contribution

d during the company's first year
 units. The selling

$ 1,000,000
$ 600,000
$ 400,000
$ 270,000
$ 130,000

$ 1,000,000
$ 360,000
$ 80,000
$ 560,000
$ 300,000
$ 190,000
$ 70,000
 $ 18,000,000
t, the company's

reases, decreased or remaned

Which means that at a sales

y dollar it earns over this point
million in its annual report in spite
thod, which the company is
on ($123 + $18 ? $115). This net
eased during the year due to

o each of the company's first two

units. During its

units. The selling price of the

Year 2
$ 3,000,000
$ 2,250,000
$ 100,000
$ 650,000
 $ 250,000
$ 80,000
$ 320,000

me in year 1. Also, explain why

repared the contribution format

ou computed in requirements 2 &
new segmented income
regions when computing the

g losses for some time, as shown

ented by division. Accordingly,

he president.

West Division
$ 350,000
$ 140,000
$ 210,000
$ 175,000
$ 35,000

d be increased by
. Would you recommend
t it sells for $ 210.00

arbecue grill.

tement for the year.

al and dental clinics. The firm has
onsulting jobs as variable costs. A
given below:

en point for the Chicago office

an, or equal to the sum of the
ed its sales by $ 75,000

next year and that sales in

ow both amounts and

for Chicago has

at the segment margin ratio
 each of the company's first three

units. During its secont year

n its third year, Haas produced
$ 58.00 per unit.

Year 3
$ 25,000
$ 40,000
$ 65,000
$ -

Year 3
$ 800,000
$ 480,000
$ 160,000

$ 900,000
 $ 2,340,000

Year 3
$ 3,770,000

Year 2 Per Unit Year 3

$ 1,500,000 $ 20.00 $ 800,000
$ 900,000 $ 12.00 $ 480,000
$ 300,000 $ 4.00 $ 160,000
$ 960,000 24.00 $ 960,000
$ 3,660,000 $ 60.00 $ 2,400,000
$ 1,220,000
$ 1,220,000
$ 2,440,000 $ 3,620,000

e break-even point that you

Why?