. What is the amount of the difference between the variable costing and absorption costing net operating incomes (losses)

Question Completion:

Diego Company manufactures one product that is sold for $76 per unit in two geographic regions-the East and West regions. The following information pertains to the company's first year of operations in which it produced 58,000 units and sold 54,000 units.

Manufacturing Variable costs per unit:

Direct materials                                  $23

Direct labor                                            15

Variable manufacturing overhead        3

Variable selling and administrative       3

Fixed costs per year:

Fixed manufacturing overhead      $1,160,000

Fixed selling and administrative     $ 640,000

The company sold 40,000 units in the East region and 14,000 units in the West region. It determined that $320,000 of its fixed selling and administrative expense is traceable to the West region, $270,000 is traceable to the East region, and the remaining $50,000 is a common fixed expense. The company will continue to incur the total amount of its fixed manufacturing overhead costs as long as it continues to produce any amount of its only product.

Diego Company

Difference = $170,000 - (72,000)

= $242,000

Explanation:

a)Data and Calculations:

Selling price = $76 per unit

Units sold = 54,000

Units produced = 58,000

Direct materials                                  $23

Direct labor                                            15

Variable manufacturing overhead        3

Variable selling and administrative       3

Variable costs per unit:                     $44

Fixed costs per year:

Fixed manufacturing overhead      $1,160,000

Fixed selling and administrative     $ 640,000

Cost of Production:

Under variable costing:

Variable cost per unit X Units produced

= $44 * 58,000 = $2,552,000

Cost of goods sold = $44 * 54,000 = $2,376,000

Cost of Ending Inventory = $44 * 4,000 = $176,000

Under Absorption costing:

(Variable manufacturing costs * Units produced) + Fixed manufacturing overhead

= $41 * 58,000 + $1,160,000

= $3,538,000

Product Cost per unit = $3,538,000/58,000 = $61

Cost of goods sold = $61 * 54,000 = $3,294,000

Ending Inventory = $61 * 4,000 = $244,000

Sales Revenue = $76 * 54,000 = $4,104,000

Income Statement         Under Variable    Under Absorption

Sales Revenue                  $4,104,000           $4,104,000

Cost of goods sold             2,376,000            3,294,000

Gross profit                       $1,728,000              $810,000

Fixed costs:

Manufacturing overhead $1,160,000

Selling and administrative   640,000             $640,000

Total fixed costs              $1,800,000             $640,000

Net operating losses           $72,000             $170,000

Difference = $170,000 - (72,000) = $242,000

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