ACCT303Chapter9

# Breakeven point in units a variable costing qt per

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Breakeven point in units: a. Variable Costing: QT = Per Unit Margin on Contributi Income Operating Target Costs Fixed Total + QT = ) 25 \$ 75 (\$ 300 \$ 0 \$ ) 000 , 50 \$ 000 , 100 (\$ + - + + QT = 200 \$ 000 , 150 \$ QT = 750 cat trees b. Absorption costing: Fixed manufacturing cost rate = \$100,000 ÷ 1,000 = \$100 per cat tree QT = ( 29 Total Fixed Target Fixed Manuf. Breakeven Units Cost OI Cost Rate Sales in Units Produced Contribution Margin Per Unit + + × - QT = [ ] 200 \$ ) 000 , 1 QT ( 100 \$ 000 , 150 \$ - + QT = \$150,000 \$100 QT \$100,000 \$200 + - \$200 QT - \$100 QT = \$150,000 – \$100,000 \$100 QT = \$50,000 QT = 500 cat trees 9-21

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3. Breakeven point in units: a. Variable Costing: QT = Per Unit Margin on Contributi Income Operating Target Costs Fixed Total + QT = ) 25 \$ 100 (\$ 300 \$ 0 \$ ) 000 , 50 \$ 000 , 100 (\$ + - + + QT = 175 \$ 000 , 150 \$ QT = 857.14 cat trees b. Absorption costing: Fixed manufacturing cost rate = \$100,000 ÷ 1,000 = \$100 per cat tree QT = ( 29 Total Fixed Target Fixed Manuf. Breakeven Units Cost OI Cost Rate Sales in Units Produced Contribution Margin Per Unit + + × - QT = [ ] 175 \$ ) 000 , 1 QT ( 100 \$ 000 , 150 \$ - + QT = \$150,000 \$100 QT \$100,000 \$175 + - \$175 QT - \$100 QT = \$150,000 – \$100,000 \$75 QT = \$50,000 QT = 666.66 cat trees 9-22
4. Units needed to achieve target operating income: a. Variable Costing: QT = Per Unit Margin on Contributi Income Operating Target Costs Fixed Total + QT = ) 25 \$ 75 (\$ 300 \$ 000 , 10 \$ ) 000 , 50 \$ 000 , 100 (\$ + - + + QT = 200 \$ 000 , 160 \$ QT = 800 cat trees b. Absorption costing: Fixed manufacturing cost rate = \$100,000 ÷ 1,000 = \$100 per cat tree QT = ( 29 Total Fixed Target Fixed Manuf. Breakeven Units Cost OI Cost Rate Sales in Units Produced Contribution Margin Per Unit + + × - QT = [ ] \$150,000 \$30,000 \$100 (QT 1,000) \$200 + + - QT = \$180,000 \$100 QT \$100,000 \$200 + - \$200 QT - \$100 QT = \$180,000 – \$100,000 \$100 QT = \$80,000 QT = 800 cat trees 9-23

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9-28 (40 min.) Variable costing versus absorption costing. 1. Absorption Costing: Mavis Company Income Statement For the Year Ended December 31, 2009 Revenues (540,000 × \$5.00) \$2,700,000 Cost of goods sold: Beginning inventory (30,000 × \$3.70 a ) \$ 111,000 Variable manufacturing costs (550,000 × \$3.00) 1,650,000 Allocated fixed manufacturing costs (550,000 × \$0.70) 385,000 Cost of goods available for sale 2,146,000 Deduct ending inventory (40,000 × \$3.70) (148,000) Add adjustment for prod.-vol. variance (50,000 b × \$0.70) 35,000 U Cost of goods sold 2,033,,000 Gross margin 667,000 Operating costs: Variable operating costs (540,000 × \$1) 540,000 Fixed operating costs 120,000 Total operating costs 660,000 Operating income \$ 7,000 a \$3.00 + (\$7.00 ÷ 10) = \$3.00 + \$0.70 = \$3.70 b [(10 units per mach. hr. × 60,000 mach. hrs.) – 550,000 units)] = 50,000 units unfavorable 2. Variable Costing: Mavis Company Income Statement For the Year Ended December 31, 2009 Revenues \$2,700,000 Variable cost of goods sold: Beginning inventory (30,000 × \$3.00) \$ 90,000 Variable manufacturing costs (550,000 × \$3.00) 1,650,000 Cost of goods available for sale 1,740,000 Deduct ending inventory (40,000 × \$3.00) (120,000 ) Variable cost of goods sold 1,620,000 Variable operating costs 540,000 Contribution margin 540,000 Fixed costs: Fixed manufacturing overhead costs 420,000 Fixed operating costs 120,000 Total fixed costs 540,000 Operating income \$ 0 9-24
3. The difference in operating income between the two costing methods is : = \$7,000 – \$0 = [(40,000 × \$0.70) – (30,000 × \$0.70)] \$7,000 = \$28,000 – \$21,000 \$7,000 = \$7,000 The absorption-costing operating income exceeds the variable costing figure by \$7,000 because of the increase of \$7,000 during 2009 of the amount of fixed manufacturing costs in ending inventory vis-a-vis beginning inventory.

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