The Redwood Company has been manufacturing its single product since 2015. While the direct material and labor are easy to trace, the manufacturing overhead is not. The company made 60,000 units in 2015 and 80,000 units in 2016, and the total manufacturing overhead it paid was $700,000 for 2015 and $900,000 for 2016.

The product that the Redwood Company manufactures can sell at $60 each. The other cost information is as follows.

Variable cost
Direct Material	$20/unit
Direct Labor	$8/unit
Manufacturing Overhead
Selling & administrative cost	$2/unit
Fixed cost
Manufacturing Overhead
Selling & administrative expenses	$200,000/year

1. Help the Redwood Company to figure out its variable and yearly fixed manufacturing overhead, and fill them into the table above.
2. Calculate the prime cost per unit.
3. Calculate the conversion cost per unit.
4. Calculate the Unit Contribution Margin.
5. Calculate the Break-Even Point.

6. In 2017, the Redwood Company produced 80,000 units and sold 70,000 units.

1. Calculate the Absorption-method COGS per unit.
2. Complete its income statement using the variable costing method.

Variable Costing Method Income Statement The Year of 2017
Sales		x
Less: variable expenses
Total variable expenses		x
		x
Less: fixed expenses
Total fixed expenses		x
Net operating income		x

3. Complete its income statement using the absorption costing method.

Absorption Costing Method Income Statement The Year of 2017
Sales		x
Less: cost of goods sold		x
		x
Less: selling & admin. expenses
Total selling & admin. expenses		x
Net operating income		x

7. In 2018, the Redwood Company produced 80,000 units and sold 75,000 units.

1. Complete its income statement using the variable costing method.

Variable Costing Method Income Statement The Year of 2018
Sales		x
Less: variable expenses
Total variable expenses		x
		x
Less: fixed expenses
Total fixed expenses		x
Net operating income		x

2. Complete its income statement using the absorption costing method.

Absorption Costing Method Income Statement The Year of 2018
Sales		x
Less: cost of goods sold		x
		x
Less: selling & admin. expenses
Total selling & admin. expenses		x
Net operating income		x

8. Use the variable-costing-method income in 2018 to calculate the Redwood Companys degree of operating leverage (DOL).
9. In 2019, the Redwood Company can sell 90,000 units. Use the DOL to predict the companys net operating income for 2019 under the variable costing method.