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ClassOf1_marginal_costing_break_even_point_9

# ClassOf1_marginal_costing_break_even_point_9

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Calculation of Break Even Point and Degree of Operating Leverage.
Calculation of Break Even Point and Degree of Operating Leverage.

Published by: ClassOf1.com on Jul 09, 2009

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05/11/2014

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Sub: Accounts
Topic: MarginalCosting
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ClassOf1 provides exert guidance for College, Graduate and High school homework and live online tutoring on subjects like
Finance, Marketing, Statistics, Economics and others. Check out more solved problems in our Solution Library.
Question:

Downes Consolidated Industries International uses a standard cost system and records
standards in the accounting records. The standard costs for one unit of one of its products are
as follows.

Direct Materials, 3lbs.@\$20 per lb. \$ 60.00
Direct labor, 2 hrs. @\$15 per hr. 30.00
Variable overhead, 4machine hrs. @\$1 per hr 4.00
Fixed overhead, 4 machine hrs.@\$2.50 per hr 10.00

---------
Total \$104.00
---------
Overhead is applied on the basis of machine hours. The planned level of activity(denominator

level) is 320,000 machine hours. The total budgeted fixed overhead is \$800,000.
Other budgeted items are:
Unit selling price, \$170,00 per unit
Variable selling & administrative expenses, \$5 per unit

Sub: Accounts
Topic: MarginalCosting
www.classof1.com
Fixed selling & administrative expenses, \$160,000.
Planned level of production and sales, 80,000.
ACTUAL RESULTS:

Direct materials purchased, 250,000 lbs.@\$22 per lb.
Direct materials used, 240,000
Direct labor, 150,000 hrs, total cost, \$2,225,000
Units produced, 82,000 Units
Units sold, 80,500
Selling price per unit,160,00
Variable selling and administrative expenses, \$410,000.
Fixed selling & administrative , \$175,000.
Actual machine hours,330,000.
Question:
Prepare an Income Statement of Actual Results using variable costing.
1. Calculate the breakeven point in dollars.
2. Calculate DOL

Sub: Accounts
Topic: MarginalCosting
www.classof1.com
Solution:
Standard cost for one unit of production
Direct Material
3 lbs @ \$20 per lb
\$60.00
Direct Labour
2 hrs @ \$15 per hr
\$30.00
4 machine hrs @ \$1 per hr
\$4.00
4 machine hrs @ \$2.50 per hr
\$10.00
Total
\$104.00
Machine hour
320,000
Total budgeted fixed overhead
\$
800,000
Selling price per unit
\$
175
Variable Selling & Admin exp (per unit)
\$
5
Fixed Selling & Admin exp
\$
160,000
Planned level of production & sale
80,000
Production for
80,000
Direct Material
\$
4,800,000
Direct Labour
\$
2,400,000
\$
320,000
Variable Selling & Admin exp
\$
400,000
\$
7,920,000
\$
800,000
Fixed Selling & Admin exp
\$
160,000
Total Cost of Production
\$
8,880,000

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