Task: Desktec, Inc. makes an oak desk for personal computers. The desk sells for $200. Data for last year's operations are:
Units at beginning inventory 0
Units produced 10,000
Units sold 9,000
Units in ending inventory 1,000
Variable costs per unit:
Direct materials $60
Direct labor 30
Variable manufacturing overhead 10
Variable selling and administrative 20
Total variable cost per unit $120
Fixed costs:
Fixed manufacturing overhead $300,000
Fixed selling and administrative 450,000
Total fixed costs $750,000
Question 1. Assume that the company uses variable costing. Compute the unit product cost for one computer desk.
Direct materials $60.00
Direct labor 30.00
Variable manufacturing overhead 10.00
Unit product cost $100.00
Question 2. Assume that the company uses variable costing. Prepare an income statement for the year using the contribution format.
INCOME STATEMENT
Sales (9,000 units X $10) 90,000
Less variable expenses
Variable cost of goods sold:
Beginning inventory 0
Add variable manufacturing costs 1,000,000
(10,000 X $100 per unit)
Goods available for sale 1,000,000
Less ending inventory (1,000 X $100 per unit) 100,000
Variable cost of good sold 900,000
Variable selling and administrative expenses
(9,000 X $100 per unit) 90,000 990,000
Contribution margin 990,000
Less fixed expenses:
Fixed manufacturing overhead $300,000
Fixed selling and administrative 450,000 750,000
Net operating income $240,000
Question 3. What is the company's break-even point in terms of units sold?