Question

Kylo Corporation manufactures and sells one product. The following information pertains to the company's first year of operations:

Selling price per unit	$100
Variable costs per unit:
Manufacturing:
Direct materials	$9
Direct labor	$20
Variable manufacturing overhead	$11
Variable selling and administrative expense	$9
Fixed costs per year:
Fixed manufacturing overhead	$45,000
Selling and administrative expense	$66,000

Production	5,000 units
Sales	4,500 units

Q.) What is net operating income under variable costing in the first year?

Answer 1

Solution:

Net Operating Income Under Variable Costing = $ 118,500

Working:

Kylo Corporation
Variable Costing Income Statement
Sales Revenue [4500*100]		$        450,000
Less: Variable Costs
Direct Materials 4500*9	$        40,500
Direct Labors 4500*20	$        90,000
Variable Manufacturing Overhead 4500*11	$        49,500
Variable Selling and Administrative Costs 4500*9	$        40,500	$        220,500
Contribution Margin[Sales - Variable Cost]		$        229,500
Less: Fixed Costs
Fixed Manufacturing Overhead	$        45,000
Fixed Selling and Administrative Costs	$        66,000
		$        111,000
Net Operating Income [Contribution Margin-Fixed Cost]		$        118,500