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    Variable costing/Absorption costing/Breakeven

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    ABC, Inc. is a newly organized manufacturing business this year.
    The following company's costs and expenses are:

    Sales price per unit $55
    Manufacturing costs:
    Direct materials
    Direct labor
    Variable Manufacturing overhead
    Fixed Manufacturing overhead
    Period expenses:
    Variable Selling and administrative expenses
    Fixed Selling and Administrative expenses
    Totals
    Units produced 5,800
    Units sold 5,600

    Required: Use the information in the DATA field above using cell referencing to answer the following requirements.
    1. Calculate the unit cost for variable costing.
    2. Calculate the unit cost for absorption costing.
    3. Prepare an absorption-costing income statement.
    4. Prepare a variable-costing income statement.
    5. Reconcile the differences in income that you calculated in #3 and #4 .
    6. Calculate the breakeven point in units.
    7. Calculate the breakeven point in sales dollars.
    8. Calculate the safety margin.
    9. What does the margin of safety mean?
    10. Calculate the operating leverage .
    11. What if sales volume increases by 7% how much will income increase in percentage terms?

    Solution:
    1.
    Variable costing
    Direct materials
    Direct labor
    Variable overhead
    Fixed overhead
    Total per unit cost

    3. ABC Company Inc.
    Absorption Costing Income statement

    Sales revenue
    Less: Cost of goods sold
    Gross Margin
    Less: Selling and administrative expenses
    Variable
    Fixed
    Net income

    4. ABC Company Inc.
    Variable Costing Income statement

    Sales Revenue
    Less: Variable Expenses:
    Variable manufacturing costs
    Variable Selling and administrative costs
    Contribution margin
    Less: Fixed Expenses:
    Fixed manufacturing overhead
    Fixed selling and Administrative expenses
    Net income
    5. I am using a modification of the short cut method on page 331 as my model.
    Change in inventory:
    Units produced
    Units sold
    Increase in inventory
    Fixed overhead rate
    Difference in fixed overhead expensed

    Net income:
    Absorption costing
    Variable costing
    Difference

    6. Break even in units
    Units

    7. Break even in sales $

    8. Safety Margin

    9. What does the margin of safety mean?

    10. Calculate the operating leverage .

    11. What if sales volume increases by 7% how much will income increase in percentage terms?

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    https://brainmass.com/business/accounting/variable-costing-absorption-costing-breakeven-346511

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    Solution Summary

    The solution provides answers to various Variable costing/Absorption costing/Breakeven questions for ABC, Inc. which is a newly organized manufacturing business.

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