5-11

4) Compare the net operating income figures that you computed in requirments 2 & 3 to the break-even point that you Computed in requirement 1. Which net operating income fiqures seem counter intuitive? Why?

Exercise 5-9 Lynch Company manufactures Year 1 Units produced Units sold Units in ending inventory Selling price per unit Manufacturing costs: Variable per unit: Direct materials Direct labor Variable overhead Fixed per period Selling and admin. costs: Variable per unit Fixed per period 25,000 20,000 5,000 $ 50 6 9 3 300,000 4 190,000 1 Assume that the company uses absorption costing : a. Compute the unit product cost Unit product cost Direct materials $ 6 Direct labor 9 Variable overhead 3 Fixed overhead per unit 12 Per unit cost $ 30 b. Prepare an income statement for the year Absorption Income Statement Sales revenue Cost of goods sold: Beginning inventory Cost of goods manufactured Goods available for sale Less ending inventory Cost of goods sold Gross margin Selling and admin. expenses Net income Year 1 $ 1,000,000 $ 750,000 750,000 150,000 $ 600,000 400,000 270,000 130,000 2 Assume that the company uses variable costing : a. Compute the unit product cost Unit product cost Direct materials $ 6 Direct labor 9 Variable overhead 3 Per unit cost $ 18 b. Prepare an income statement for the year Variable Costing Income Statement Sales revenue Less variable expenses: Variable cost of goods sold Variable selling and admin. Year 1 $ 1,000,000 $ 360,000 80,000 440,000 Contribution margin Less fixed expenses: Fixed manufacturing overhead Fixed selling and admin. Net income 560,000 300,000 190,000 $ 490,000 70,000 Exercise 5-11 Hans Company manufactures data Units produced Units sold Units in ending inventory Selling price per unit Manufacturing costs: Variable per unit: Direct materials Direct labor Variable overhead Fixed per period Selling and admin. costs: Variable per unit Fixed per period Year 1 60,000 60,000 $ Year 2 75,000 50,000 25,000 Year 3 40,000 65,000 - 58 20 12 4 960,000 2 240,000 1 Compute the company's break-even point in unit sold 2 Assume that the company uses variable costing : a. Compute the unit product cost for Year 1, Year 2 and Year 3 Unit product cost Direct materials Direct labor Variable overhead Per unit cost Year 1 $ $ Year 2 20 $ 12 4 36 $ Year 3 20 12 4 36 $ 20 12 4 36 $ b. Prepare an income statement for Year 1, Year 2 and Year 3 Variable Costing Income Statement Sales revenue Less variable expenses: Variable cost of goods sold Variable selling and admin. Contribution margin Less fixed expenses: Fixed manufacturing overhead Fixed selling and admin. Net income Year 1 $ 3,480,000 $ 2,160,000 120,000 960,000 240,000 2,280,000 1,200,000 Year 2 $ 2,900,000 $ 1,800,000 100,000 1,900,000 1,000,000 960,000 240,000 1,200,000 $ - $ 3 Assume that the company uses absorption costing : a. Compute the unit product cost for Year 1, Year 2 and Year 3 Unit product cost Year 1 Year 2 Direct materials $ 20 $ 20 Direct labor 12 12 Variable overhead 4 4 Fixed overhead per unit 16 13 Per unit cost $ 52 $ 49 Year 3 $ $ 20 12 4 24 60 b. Prepare an income statement for Year 1, Year 2 and Year 3 Absorption Income Statement Year 1 Year 2 1,200,000 (200,000) Sales revenue Cost of goods sold: Beginning inventory Cost of goods manufactured Goods available for sale Less ending inventory Cost of goods sold Gross margin Selling and admin. expenses Net income $ 3,480,000 $ 3,120,000 3,120,000 - $ 2,900,000 $ 3,120,000 360,000 360,000 $ - 3,660,000 3,660,000 1,220,000 2,440,000 460,000 340,000 $ 120,000 4 Compare the net operating income figures that you computed in requirments 2 & 3 to the break-even point that Computed in requirement 1. Which net operating income fiqures seem counter intuitive? Why? Year 3 $ 3,770,000 $ 2,340,000 130,000 2,470,000 1,300,000 960,000 240,000 $ Year 3 1,200,000 100,000 $ 3,770,000 $ 1,220,000 2,400,000 3,620,000 3,620,000 150,000 370,000 $ (220,000) the break-even point that you