Question

Harris Company manufactures and sells a single product. A partially completed schedule of the company’s total costs and costs per unit over the relevant range of 70,000 to 110,000 units is given below:

Required:

1. Complete the schedule of the company’s total costs and costs per unit as given in the relevant tab below.

2. Assume that the company produces and sells 100,000 units during the year at a selling price of $7.81 per unit. Prepare a contribution format income statement for the year.

Answer 1

1. The completion of the schedule of the Harris Company's total costs and costs per unit is as follows:

70,000 units 90,000 units 110,000 units

Produced and Produced and Produced and

Sold Sold Sold

Variable cost $189,000 $243,000 $297,000

Fixed cost 370,000 370,000 370,000

Total costs $559,000 $613,000 $667,000

Cost per unit:

Variable cost $2.70 $2.70 $2.70

Fixed cost $5.29 $4.11 $3.36

Total cost $7.99 $6.81 $6.06

2. Assuming that the company produces and sells 100,000 units during the year at a selling price of $7.81 per unit, a contribution format income statement for the year is as follows:

Harris Company

Contribution-format Income Statement

For the year ended December 31

Sales revenue $781,000

Variable cost 270,000

Contribution margin $511,000

Fixed costs 370,000

Net income $141,000

The variable cost is the portion of the total cost that fluctuates according to the output and sales units.

Production and Sales Units = 100,000 units

Selling price per unit = $7.81

Total sales revenue = $781,000 ($7.81 x 100,000)

Variable cost per unit = $2.70

Total variable cost = $270,000 ($2.70 x 100,000)

Total fixed cost = $370,000

Fixed cost per unit = $3.70 ($370,000 ÷ 100,000)

Total costs = $640,000 ($270,000 + $370,000)

Total costs per unit = $6.40 per unit ($640,000 ÷ 100,000)