Explain why the fixed manufacturing overhead cost per unit changes when there is a change in the number of units produced.
Fixed manufacturing overhead cost per unit changes with a change in the number of units because total fixed cost remains constant and fixed manufacturing overhead cost per unit has an inverse relation with the number of units.
Fixed manufacturing overheads are the sunk cost to the company which remains constant in total and do not show deviation in total with the change in production level.
The fixed manufacturing overhead cost per unit changes with change in number of units produced because fixed manufacturing overhead remains constant in total and fixed manufacturing overhead cost per unit has an inverse relation with the number of units.
: Before you begin this assignment, review the Tying It All Together feature in the chapter. CF Industries Holdings, Inc. is one of the largest manufacturers and distributors of nitrogen fertilizer and other nitrogen products in the world. The corporation often produces and stores large amounts of inventory during periods of low demand to ensure that there is enough product to meet the demand of peak seasons. Assume that one line of fertilizer (with no beginning Finished Goods Inventory) had the following data during a time period of low demand:
Sales price $ 20.00 per case Variable manufacturing costs 4.00 per case Fixed manufacturing costs 100,000 per quarter Variable selling and administrative costs 2.00 per case Fixed selling and administrative costs 45,000 per quarter Given that the time period has low demand, assume the company produced 1,000,000 cases but only sold 250,000 cases.
1. Prepare the income statement for the quarter using variable costing.
2. Prepare the income statement for the quarter using absorption costing.
3. Why, if at all, is there a difference between operating income under the two methods?
: Analyzing profitability Refer to Exercise E21-22. Assume the sales mix shifted to 50% for each product. Calculate the total amount each product contributed to the coverage of fixed costs and the total contribution margin for the company.
Question: Analyzing profitability Sampler Company sells two products, Sigma and Zeta, with a sales mix of 70% and 30%, respectively. Sigma has a contribution margin per unit of $26, and Zeta has a contribution margin per unit of $21. The company sold 700 total units in September. Calculate the total amount each product contributed to the coverage of fixed costs and the total contribution margin for the company.
Question: Using variable costing, service company
Divine Pool Cleaning Service provides pool cleaning services to residential customers. The company has three employees, each assigned to specific customers. The company considers each employee’s territory as a business segment. The company incurs variable costs that include the employees’ wages, pool chemicals, and gas for the service vans. Fixed costs include depreciation on the service vans. Following is the income statement for the month of August:
1. Calculate the contribution margin ratio for each business segment.
2. The business segments had the following number of customers: Byson, 80; Moore, 50; and Freeman, 110. Compute the service revenue per customer, variable cost per customer, and contribution margin per customer for each business segment.
3. Which business segment was most profitable? List some possible reasons why this segment was most profitable. How might the various reasons affect the company in the long term?
The Stark Company manufactures a product that is expected to incur $20 per unit in variable production costs and sell for $40 per unit. The sales commission is 10% of the sales price. Due to intense competition, Stark actually sold 200 units for $38 per unit. The actual variable production costs incurred were $23.75 per unit. Calculate the total contribution margin and contribution margin ratio at the expected price/costs and the actual price/costs. How might management use this information?
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