# With this figure the variable costing income

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With this figure, the variable costing income statements can be prepared: Year 1 Year 2 Sales ......................................................... \$1,000,000 \$1,500,000 Variable expenses: Variable cost of goods sold @ \$20 per unit 400,000 600,000 Variable selling and administrative @ \$3 per unit ................................................ 60,000 90,000 Total variable expenses ............................... 460,000 690,000 Contribution margin .................................... 540,000 810,000 Fixed expenses: Fixed manufacturing overhead .................. 350,000 350,000 Fixed selling and administrative ................ 250,000 250,000 Total fixed expenses ................................... 600,000 600,000 Net operating income (loss) ........................ \$ (60,000) \$ 210,000 2. The reconciliation of absorption and variable costing follows: Year 1 Year 2 Variable costing net operating income (loss) \$(60,000) \$210,000 Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing (5,000 units × \$14 per unit in Year 1; 5,000 units × \$14 per unit in Year 2) ................................... 70,000 (70,000) Absorption costing net operating income ..... \$ 10,000 \$140,000
Managerial Accounting Garrison Noreen Brewer 14th Edition Solutions Manual Managerial Accounting Garrison Noreen Brewer 14th Edition Solutions Manual Problem 6-19 (30 minutes) 1. Sales Territory Total Company Central East Amount % Amount % Amoun Sales .............................................. \$900,000 100.0 \$400,000 100 \$500,0 Variable expenses ........................... 408,000 45.3 208,000 52 200,0 Contribution margin ........................ 492,000 54.7 192,000 48 300,0 Traceable fixed expenses ................. 290,000 32.2 160,000 40 130,0 Territorial segment margin ............... 202,000 22.4 \$ 32,000 8 \$170,0 Common fixed expenses* ................ 175,000 19.4 Net operating income ...................... \$ 27,000 3.0 *465,000 \$290,000 = \$175,000 Product Line Central Territory Awls Po Amount % Amount % Amoun Sales .............................................. \$400,000 100.0 \$100,000 100 \$300,0 Variable expenses ........................... 208,000 52.0 25,000 25 183,0 Contribution margin ........................ 192,000 48.0 75,000 75 117,0 Traceable fixed expenses ................. 114,000 28.5 60,000 60 54,0 Product line segment margin ........... 78,000 19.5 \$ 15,000 15 \$ 63,0 Common fixed expenses* ................ 46,000 11.5 Sales territory segment margin ........ \$ 32,000 8.0 *\$160,000 \$114,000 = \$46,000
Managerial Accounting Garrison Noreen Brewer 14th Edition Solutions Manual Managerial Accounting Garrison Noreen Brewer 14th Edition Solutions Manual Problem 6-19 (continued) 2. Two points should be brought to the attention of management. First, compared to the Eastern territory, the Central territory has a low contribution margin ratio. Second, the Central territory has high traceable fixed expenses. Overall, compared to the Eastern territory, the Central territory is very weak. 3. Again, two points should be brought to the attention of management. First, the Central territory has a poor sales mix. Note that the territory sells very little of the Awls product, which has a high contribution margin ratio. It is this poor sales mix that accounts for the low overall contribution margin ratio in the Central territory mentioned in part (2) above. Second, the traceable fixed expenses of the Awls product seem very high in relation to sales. These high fixed expenses may simply mean that the Awls product is highly leveraged; if so, then an increase in sales of this product line would greatly enhance profits in the Central territory and in the company as a whole.
Managerial Accounting Garrison Noreen Brewer 14th Edition Solutions Manual Managerial Accounting Garrison Noreen Brewer 14th Edition Solutions Manual Problem 6-20 (45 minutes) 1. a. and b.