Question

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a) Calculate the per unit cost with absorption costing

b) Prepare a segmented income statement, clearly showing the contribution margin

Answer 1

1		$
	Beginning direct material	80,000.00
	Add: Material purchases	695,000.00
	Less: Ending direct material	(105,000.00)
	Direct material consumed	670,000.00
		X	Y	Total
	a. Units produced	7,000.00	5,000.00
	b. Direct labor per unit ( hours )	5.00	2.50
	c. Total Direct labor required ( a x b )	35,000.00	12,500.00	47,500.00
	d. Machine hours per unit ( Hours )	3.00	6.00
	e. Total Machine hours required ( a x d )	21,000.00	30,000.00	51,000.00
	Direct Labor per hour = $ 593,750 / 47,500 hours = $ 12.50 per hour
	Variable Manufacturing Overhead per Machine Hour = $ 35,625 / 51,000 hours = $ 0.70 per machine hour
a		X ( 7,000 units )	Y ( 5,000 units )	Total
		$	$	$
	Direct Material	420,000.00	250,000.00	670,000.00
	Direct Labor at $ 12.5 per hour	437,500.00	156,250.00	593,750.00
	Variable manufacturing overhead at $ 0.70 per machine hour	14,700.00	20,925.00	35,625.00
	Fixed manufacturing overhead ( divided on the basis of number of units produced ie, 7000: 5000 )	354,666.67	253,333.33	608,000.00
	Total manufacturing costs	1,226,866.67	680,508.33	1,907,375.00
	Absorption cost per unit	175.27	136.10
b		X	Y	Total
	Number of units sold ( units )	8,000.00	4,500.00
		$	$	$
	1. Average selling price per unit	250.00	200.00
	Less: Variables cost per unit ;
	Direct material cost per unit	60.00	50.00
	Direct labor cost per unit	62.50	31.25
	Variable manufacturing overhead per unit	2.10	4.19
	Sales commission per unit	12.50	8.00
	2. Total variable cost per unit	137.10	93.44
	3. Contribution margin per unit ( 1 - 2 )	112.90	106.57
	Segmented Income Statement
		X	Y	Total
	Sales Revenue	2,000,000.00	900,000.00	2,900,000.00
	Less: Total Variable costs	(1,096,800.00)	(420,457.50)	(1,517,257.50)
	Contribution Margin	903,200.00	479,542.50	1,382,742.50
	Less: Fixed Manufacturing overhead	(354,666.67)	(253,333.33)	(608,000.00)
	Less: Fixed selling and admin. Costs ( based on number of units sold ie, 8000: 4500)	(339,200.00)	(190,800.00)	(530,000.00)
	Net income	209,333.33	35,409.17	244,742.50
	Add: Interest Revenue			24,700.00
	Overall Net income			269,442.50