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Exercise 6-4 (10 minutes)
Total
Company
Weedban
Greengrow
Sales* ...................................
$300,000
$90,000
$210,000
Variable expenses** ..............
183,000
36,000
147,000
Contribution margin ...............
117,000
54,000
63,000
Traceable fixed expenses ........
66,000
45,000
21,000
Product line segment margin ..
51,000
$ 9,000
$ 42,000
Common fixed expenses not
traceable to products ...........
33,000
Net operating income .............
$ 18,000
*
Weedban: 15,000 units × $6.00 per unit = $90,000.
Greengrow: 28,000 units × $7.50 per unit = $210,000.
**
Weedban: 15,000 units × $2.40 per unit = $36,000.
Greengrow: 28,000 units × $5.25 per unit = $147,000.
Exercise 6-5 (continued)
3. The break-even point for the South region is computed as follows:
Dollar sales for a
segment to break even
=
Segment traceable fixed expenses
Segment CM ratio
=
$60,000
0.60
=
$100,000
Exercise 6-6 (30 minutes)
1. a. The unit product cost under absorption costing would be:
Direct materials..............................................................
$ 6
Direct labor....................................................................
9
Variable manufacturing overhead ....................................
3
Total variable costs .........................................................
18
Fixed manufacturing overhead ($300,000 ÷ 25,000 units)
12
Absorption costing unit product cost ...............................
$30
b. The absorption costing income statement:
Sales (20,000 units × $50 per unit) ...........................
$1,000,000
Cost of goods sold (20,000 units × $30 per unit) .......
600,000
Gross margin ...........................................................
400,000
Selling and administrative expenses
[(20,000 units × $4 per unit) + $190,000] ..............
270,000
Net operating income ...............................................
$ 130,000
2. a. The unit product cost under variable costing would be:
Direct materials............................
$ 6
Direct labor..................................
9
Variable manufacturing overhead ..
3
Variable costing unit product cost ..
$18
b. The variable costing income statement:
Sales (20,000 units × $50 per unit) ............
$1,000,000
Variable expenses:
Variable cost of goods sold
(20,000 units × $18 per unit) ...............
$360,000
Variable selling expense
(20,000 units × $4 per unit) .................
80,000
440,000
Contribution margin ..................................
560,000
Fixed expenses:
Fixed manufacturing overhead ................
300,000
Fixed selling and administrative expense ..
190,000
490,000
Net operating income ................................
$ 70,000
Exercise 6-10 (continued)
