Problem - Variable and Absorption Costing with high-low cost estimation and CVP Analysis Including Taxes
Charger Company Income statement January 2012
Production and sales 40,000
Sales Revenue $1,000,000
Cost of goods manufactured and sold (500,000)
Gross profit 475,000
General and administrative expenses 235,000
Net income before taxes 240,000
Income taxes at 0.40 (96,000)
Net income after taxes $ 144,000
February 2012
Production and sales 50,000
Sales Revenue $1,250,000
Cost of goods manufactured and sold (625,000)
Gross profit 625,000
General and administrative expenses 235,000
Net income before taxes 390,000
Income taxes at 0.40 (156,000)
Net income after taxes $ 234,000
a. Using the high-low method, develop a cost estimating equation for total monthly manufacturing costs.
b. Determine Charger Company's monthly break-even point.
c. Determine the unit sales required to earn a monthly after-tax income of $ 150,000.
d. Prepare a January 2012 contribution income statement using variable costing.
e. If the January 2012 net income amounts differ using absorption and variable costing, explain why. If they are identical, explain why.