Allocating Fixed Costs

Allocating Fixed Costs

Computations

Income Statement of the company for the year 200X

Product AProduct BTotal

Sales$960,000$1,080,000$2,000,000

Less: Variable Expenses

Direct Material$560,000$240,000 $800,000

Direct Labor$120,000$360,000 $480,000

Variable Overhead$80,000$120,000 $200,000

Variable Selling & Admin $26,000 $54,000 $80,000

Total Variable Expenses$786,000$774,000$1,560,000

Contribution Margin$174,000$306,000 $440,000

Fixed Expenses

Fixed Manufacturing Overhead$200,000$200,000 $200,000

Fixed Selling & Administration$100,000$100,000 $100,000

Total Fixed Expenses$300,000$300,000 $300,000

Net Operating Income/Loss$126,000 -$6,000 $140,000

(http://www.pearsoned.ca/, n.d.)

Comment

The execution of activity based costing (ABC) can be considered as one of the initiatives taken by the organizations to produce high quality products with cost and time effectiveness. The organizations, using activity based costing examines the profit generated by the products and thus selects the products effectively. Manufacturing organizations, search for improvements ...