Longhorn Company reports current E&P of $100,000 in 20X3 and a deficit of ($200,000) in accumulated E&P at the beginning
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<u>Solution and Explanation:</u>
1 Breakeven point = Fixed cost/contribution per unit
= 60000 Units
2. a
year 1 year 2 year 3
unit product cost 41 41 41
Direct material 25
Direct Labour 12
Variable manufactoring overhead 4
Variable costing unit product cost 41
2. b <u> Variable expenses</u>
Variable cost of goods sold 24,60,000 30,75,000 16,40,000
Variable selling and administrative 1,20,000 1,50,000 80,000
Total variable expenses 25,80,000 32,25,000 17,20,000
Contributon margin 8,40,000 -3,75,000 19,85,000
Fixed expenses
Fixed manufactoring overhead 4,80,000 4,80,000 4,80,000
Fixed selling and administrative 3,60,000 3,60,000 3,60,000
Total Fixed Expenses 8,40,000 8,40,000 8,40,000
Net operating income -12,15,000 11,45,000 Note Year 1 year 2 year 3
Unit sold 60000 50000 65000
Unit price 57 57 57 Sales 3420000 2850000 3705000
Variable cost of goods sold
Unit 60000 75000 40000
Unit cost 41 41 41
Total 2460000 3075000 1640000 Variable selling and administrative
Unit 60000 75000 40000
Unit cost 2 2 2 Total 120000 150000 80000
3
a unit product cost year 1 year 2 year 3
Direct material 25 25 25
Direct Labour 12 12 12
Variable manufactoring overhead 4 4 4
Fixed manufactoring over head 8 6.4 12
Variable costing unit product cost 49 47.4 53
Note
Fixed manufactoring over head
480000 divided by 60000 8.00
480000 divided by75000 6.40
480000 divided by 40000 12.00
<u>b Hass company</u>
Absorbtion costing income statement
Year 1 year 2 year 3
Sales 34,20,000 28,50,000 37,05,000 Cost of goods sold 29,40,000 23,70,000 33,05,000 Gross margin 4,80,000 4,80,000 4,00,000 selling and admin exp 4,80,000 4,60,000 4,90,000 Net operating income - 20,000 -90,000 Note
Cost of goods sold
Year 1 60000 multiply with 49 = 2940000
Year 2 50000 multiply with47.4= 2370000
Year 3 = 3305000
selling and administrative expenses
Year 1 = 480000
Year 2 = 460000
Year 3 = 490000