Enter a formula into each of the cells marked with a ? below
Review Problem 1: Contrasting Variable and Absorption Costing
Compute the Ending Inventory
Year 1
Year 2
Units in beginning inventory
0
?
Units produced during the year
?
?
Units sold during the year
?
?
Units in ending inventory
?
?
Compute the Absorption Costing Unit Product Cost
Year 1
Year 2
Direct materials
?
?
Direct labor
?
?
Variable manufacturing overhead
?
?
Fixed manufacturing overhead
?
?
Absorption costing unit product cost
?
?
Construct the Absorption Costing Income Statement
Year 1
Year 2
Sales
?
?
Cost of goods sold
?
#VALUE!
Gross margin
?
?
Selling and administrative expenses
?
?
Net operating income
?
?
Compute the Variable Costing Unit Product Cost
Year 1
Year 2
Direct materials
?
?
Direct labor
?
?
Variable manufacturing overhead
?
?
Variable costing unit product cost
?
?
Construct the Variable Costing Income Statement
Year 1
Year 2
Sales
?
?
Variable expenses:
Variable cost of goods sold
?
?
Variable selling and administrative expenses
?
?
?
?
Contribution margin
?
?
Fixed expenses:
Fixed manufacturing overhead
?
?
Fixed selling and administrative expenses
?
?
?
?
Net operating income
?
?
Raner, Harris & Chan is a consulting firm that specializes in information systems for medical and dental clinics. The firm has two officesone in Chicago and one in Minneapolis. The firm classifies the direct costs of consulting jobs as variable costs. A contribution format segmented income statement for the companys most recent year is given:
Office
Total Company
Chicago
Minneapolis
Sales
$
750,000
100.0
%
$
150,000
100
%
$
600,000
100
%
Variable expenses
405,000
54.0
%
45,000
30
%
360,000
60
%
Contribution margin
345,000
46.0
%
105,000
70
%
240,000
40
%
Traceable fixed expenses
168,000
22.4
%
78,000
52
%
90,000
15
%
Office segment margin
177,000
23.6
%
$
27,000
18
%
$
150,000
25
%
Common fixed expenses not traceable to offices
120,000
16.0
%
Net operating income
$
57,000
7.6
%
Exercise 7-16 Part 1
Required:
1-a. Compute the companywide break-even point in dollar sales.
1-b. Compute the break-even point for the Chicago office and for the Minneapolis office.
1-c. Is the companywide break-even point greater than, less than, or equal to the sum of the Chicago and Minneapolis break-even points?
Answer & Explanation
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