Question

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

Selling price -------------------------------------- $140

Units in beginning inventory ----------------- 0

Units produced ---------------------------------- 1,200

Units sold -----------------------------------------    800

Units in ending inventory ---------------------    400

Variable costs per unit:

   Direct materials ------------------------------- $25

   Direct labor ------------------------------------  $41

   Variable manufacturing overhead -------   $6

   Variable selling and administrative ------   $6

Fixed costs:

   Fixed manufacturing overhead ----------- $24,000

   Fixed selling and administrative ----------   12,000

What is the net operating income for the month under variable costing?

	a.	$21,600
	b.	($15,200)
	c.	$8,000
	d.	$13,600

Answer 1

Ans.	Detemination of Unit Product Cost (Under Variable Costing):
	Particulars			Amt.($)
	Direct Material			25
	Direct Labor			41
	Variable Manuf. Overhead			6
	Cost per unit			$                72
	Income Statement under Variable Costing
	Particulars				Amt.($)	Amt.($)
	Sales (800 x $140)					$       112,000
	Variable Cost of Goods sold:
	Beginning Inventory				-
	Production cost (1,200 units x $72)				$         86,400
	Cost of Goods available for sale				86,400
	Ending Inventory (400 units x $72)				28,800	57,600
	Gross conttribution margin					54,400
	Variable Selling and administrative expenses(800 units x $6)					4,800
	Contribution Margin					49,600
	Less: Fixed cost
	Manufacturing Overhead				24,000
	Selling and administrative				12,000	36,000
	Net Operating Income					$         18,400