In its first year of operations, Utah Utility Trailers incurred the following costs: Variable production cost ...........
Question:
In its first year of operations, Utah Utility Trailers incurred the following costs:
Variable production cost ........... $2,800 per unit
Variable selling and administrative cost ..... 200 per unit
Fixed production cost .............$200,000
Fixed selling and administrative cost....... 80,000
For the year, the company reported the following results:
Sales ($5,000 per unit) ........$500,000
Cost of Goods Sold ..........(400,000)
Gross Margin ............$100,000
Selling and Administrative Cost ....(100,000)
Operating Income .......... $0
a. Using the contribution margin ratio approach, compute the break-even point for this company.
b. How many units did the firm produce in its first year of operations?
c. Provide an explanation that reconciles your result in (a) to the income statement provided above.
d. Prepare a variable costing income statement for sales of 100 units.
e. Assume that Utah Utility Trailers is in need of a bank loan. Would it be unethical to use the income statement above, rather than the income statement compiled in (d), to present to the loan officer? Explain.
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
Step by Step Answer:
Cost Accounting Foundations and Evolutions
ISBN: 978-1111626822
8th Edition
Authors: Michael R. Kinney, Cecily A. Raiborn