Year 1, Year 2, and Year 3. 4. Compare the net operating income figures that you computed in requirements 2 and 3 to the break-even point that you computed in requirement 1. Which net operating income figures seem counterintuitive? Why? 1. The break-even point in units sold can be computed using the contribution margin per unit as follows: Selling price per unit $56 Variable cost per unit 48 Contribution margin per unit $ 8 Break-even unit sales = Fixed expenses ÷ Unit contribution margin = $480,000 ÷ $8 per unit = 60,000 units 2 a. Under variable costing, only the variable manufacturing costs are included in product costs. Year 1 Year 2 Year 3 Direct materials $25 $25 $25 Direct labor 16 16 16 Variable manufacturing overhead 5 5 5 Variable costing unit product cost $46 $46 $46 Note that selling and administrative expenses are not treated as product costs; that is, they are not included in the costs that are inventoried. These expenses are always treated as period costs.
Year 1, Year 2, and Year 3. 4. Compare the net operating income figures that you computed in requirements 2 and 3 to the break-even point that you computed in requirement 1. Which net operating income figures seem counterintuitive? Why? 1. The break-even point in units sold can be computed using the contribution margin per unit as follows: Selling price per unit $56 Variable cost per unit 48 Contribution margin per unit $ 8 Break-even unit sales = Fixed expenses ÷ Unit contribution margin = $480,000 ÷ $8 per unit = 60,000 units 2 a. Under variable costing, only the variable manufacturing costs are included in product costs. Year 1 Year 2 Year 3 Direct materials $25 $25 $25 Direct labor 16 16 16 Variable manufacturing overhead 5 5 5 Variable costing unit product cost $46 $46 $46 Note that selling and administrative expenses are not treated as product costs; that is, they are not included in the costs that are inventoried. These expenses are always treated as period costs.
chap06-Rev.-FI5-Ex-Pr.docx