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Chapter 21: Q-21-14 (page 1167)
What are the two components that can affect contribution margin? Why is it important to investigate both?
Answer
Sales price per unit and variable cost per unit.
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When units produced are less than units sold, how does operating income differ between variable costing and absorption costing? Why
Preparing variable and absorption costing income statements
Claudia鈥檚 Foods produces frozen meals that it sells for \(11 each. The company computes a new monthly fixed manufacturing overhead allocation rate based on the planned number of meals to be produced that month. Assume all costs and production levels are exactly as planned. The following data are from Linda鈥檚 Foods鈥檚 first month in business:
January 2018 Units produced and sold: Sales 850 meals Production 1,050 meals Variable manufacturing cost per meal \) 5Sales commission cost per meal 1 Total fixed manufacturing overhead 315Total fixed selling and administrative costs 450 Requirements
1. Compute the product cost per meal produced under absorption costing and under variable costing.
2. Prepare income statements for January 2018 using: a. absorption costing. b. variable costing.
3. Is operating income higher under absorption costing or variable costing in January?
Preparing variable and absorption costing income statements
This problem continues the Piedmont Computer Problem situation from Chapter 20. Piedmont Computer Company manufactures personal computers and tablets. Based on the latest information from the cost accountant, using the current sales mix, the weighted-average sales price per unit is \(750 and the weighed-average variable cost per unit is \)450. The company does not expect the sales mix to vary for the next year. Assume the beginning balance in Finished Goods Inventory is \(0. Additional data for the first month of 2020:
January 2020
Unitsproduced and sold: Sales 945 units Production 1,000 units Variable manufacturing cost per unit \) 450 Sales commission cost per unit 25 Total fixed manufacturing overhead 93,600 Total fixed selling and administrative costs 62,400
Requirements
1. Compute the product cost per unit produced under absorption costing and under variable costing.
2. Prepare income statements for January 2020 using: a. absorption costing. b. variable costing.
3. Is operating income higher under absorption costing or variable costing in January? What causes the difference?
Explain why the fixed manufacturing overhead cost per unit changes when there is a change in the number of units produced.
Question: Using variable costing, service company
Divine Pool Cleaning Service provides pool cleaning services to residential customers. The company has three employees, each assigned to specific customers. The company considers each employee鈥檚 territory as a business segment. The company incurs variable costs that include the employees鈥� wages, pool chemicals, and gas for the service vans. Fixed costs include depreciation on the service vans. Following is the income statement for the month of August:
Requirements
1. Calculate the contribution margin ratio for each business segment.
2. The business segments had the following number of customers: Byson, 80; Moore, 50; and Freeman, 110. Compute the service revenue per customer, variable cost per customer, and contribution margin per customer for each business segment.
3. Which business segment was most profitable? List some possible reasons why this segment was most profitable. How might the various reasons affect the company in the long term?
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