Question:

Absorption and Variable Costing with high-low cost estimation and CVP Analysis Including Taxes

Presented are the Charger Company's functional income statements for January and February of 2012.

                                                                                       January                               February

Production and sales                                                  40,000                                 50,000

Sales Revenue                                                             $1,000,000                          $1,250,000

Cost of goods manufactured and sold                    (500,000)                            (625,000)

Gross profit                                                                  475,000                               625,000

General and adminstrative expenses                      235,000                              235,000

Net income before taxes                                           240,000                              390,000

Income taxes at 0.40                                                 (96,000)                               (156,000)

Net income after taxes                                            $ 144,000                              $ 234,000

Required

a. Using the high-low method, prepare a cost estimating equation for total monthly manufacturing costs.

b. Evaluate Charger Company's monthly break-even point.

c. Evaluate the unit sales required to earn a monthly after-tax income of $ 150,000.

d. Organize a January 2012 contribution income statement using variable costing.

e. If the January 2012 total income amounts differ using absorption and variable costing, describe why. If they are identical, describe why.