. 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

in 2001, dell computer became the world’s largest personal computer vendor, continuing to

gain market share and post profits in an industry struggling with slumping sales and billions of

dollars in losses. dell sells 90% of its pcs directly to the final customer, largely bypassing the

reseller channel that accounts for most of the world’s pc sales. this direct customer relationship

is the key to dell’s business model, and provides distinct advantages over the indirect sales

model. dell’s direct relationship with the customer allows it to tailor its offerings to customer

needs, offer add-on products and services, and use the internet to offer a variety of customer

services. in addition, dell’s pcs are built to customers’ specifications upon receipt of an order,

giving dell additional advantages over indirect pc vendors who must try to forecast demand and

ship products based on those forecasts. dell’s direct sales and build-to-order model has achieved

superior performance in the pc industry in terms of inventory turnover, reduced overhead, cash

conversion, and return on investment (kraemer, et al., 2000).

explanation: