Laguna Company had a net income of £25,000 using variable costing and a net income of £34,600 using absorption costing. The product cost using variable costing was £10.20 and using absorption costing was £15. If 10,000 units were sold, how many units were produced during?
A)2,000
B)8,000
C)12,000
D)4,800

Question

Quizplus · Accepted Answer

Using variable costing:
Contribution margin per unit = Selling price per unit - Variable cost per unit = £15 - £10.20 = £4.80
Contribution margin ratio = Contribution margin/ Selling price = £4.80/£15 = 0.32
Total contribution margin = Contribution margin ratio x Sales = 0.32 x £150,000 = £48,000
Total variable cost for 10,000 units = £102,000
Fixed cost = Total cost - Total variable cost = Net income + Fixed cost under variable costing
Fixed cost = £25,000 + Fixed cost under variable costing
Fixed cost = £73,000
Total cost = Fixed cost + Total variable cost = £73,000 + £102,000 = £175,000
Using absorption costing:
Total cost = Total variable cost + Fixed manufacturing cost + Fixed selling and administrative cost = Product cost per unit x Number of units sold
£175,000 = £15 x 10,000 + Fixed manufacturing cost + Fixed selling and administrative cost
£25,000 = Fixed manufacturing cost + Fixed selling and administrative cost
If the net income using absorption costing was £34,600, Fixed manufacturing cost + Fixed selling and administrative cost = £34,600 + £25,000 = £59,600
Therefore, Fixed manufacturing cost = £59,600 - £25,000 = £34,600
Using Product cost per unit = Total cost/ Number of units produced
£15 = £175,000/ Number of units produced
Number of units produced = £175,000/£15 = 11,666.67
Therefore, the answer is closest to 12,000.

Laguna Company Had a Net Income of £25,000 Using Variable