Question

1) XYZ Inc. sells a single product for $27 per unit. Direct materials costs were $5 per unit, while direct labour and variable manufacturing overhead costs were $3 and $2 respectively. Fixed overhead costs amount $20,000 per month. The company has a practical production capacity of 5,000 units per month. Variable selling costs are $2 per unit. Fixed selling costs are $2,000 per month. Last month, the company produced 5,000 units and sold 3,000 units. What is the company's operating income using variable costing?

2) XYZ Inc. sells a single product for $40 per unit. Direct materials costs were $5 per unit, while direct labour and variable manufacturing overhead costs were $3 and $2 respectively. Fixed manufacturing overhead costs amount $20,000 per month. The company has a practical production capacity of 5,000 units per month. Variable selling costs are $2 per unit. Fixed selling costs are $10,000 per month. Last month, the company produced 5,000 units and sold 3,000 units. What is the company's operating income using absorption costing?

3) XYZ Inc. sells a single product for $30 per unit. Direct materials costs were $5 per unit, while direct labour and variable manufacturing overhead costs were $3 and $2 respectively. Fixed manufacturing overhead costs amount $20,000 per month. The company has a practical production capacity of 10,000 units per month. Variable selling costs are $2 per unit. Fixed selling costs are $2,000 per month. During the company's first month of operations, the company produced 9,000 units and sold 6,000 units. The company's operating income under absorption costing for its first month of operations would be:

• The same as its variable costing operating income.

• $6,000 higher than its variable costing operating income.

• $8,000 lower than its variable costing operating income.

• $10,000 higher than its variable costing operating income.

Answer 1

Question 1:-

Based on the information available in the question, we can calculate the company's operating income under Variable costing as follows:-

VARIABLE COSTING INCOME STATEMENT
Total Units	3,000
Particulars	Per Unit	Total
Sales	27	81,000
Less:- Variable costs:-
Direct Labor	3	9,000
Direct Materials	5	15,000
Variable manufacturing overhead	2	6,000
Total Variable costs		30,000
Contribution Margin		51,000
Less: - Fixed expenses:-
Fixed Overheads		20,000
Fixed selling costs		2,000
Total fixed expenses		22,000
Operating Income for the month		29,000

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