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
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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
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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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