Question

7.

Kray Inc., which produces a single product, has provided the following data for its most recent month of operations. There were no beginning or ending inventories.

Number of units produced		6,000
Variable costs per unit:
Direct materials	$	40
Direct labor	$	19
Variable manufacturing overhead	$	8
Variable selling and administrative expense	$	2
Fixed costs:
Fixed manufacturing overhead	$	144,000
Fixed selling and administrative expense	$	198,000

The absorption costing unit product cost was

$69 per unit
$61 per unit
$67 per unit
$91 per unit

9.

A business operated at 100% of capacity during its first month, with the following results:

Sales (120 units)		$600,000
Production costs (150 units):
Direct materials	$75,000
Direct labor	18,750
Variable factory overhead	33,750
Fixed factory overhead	30,000	157,500
Operating expenses:
Variable operating expenses	$5,980
Fixed operating expenses	4,210	10,190

The amount of operating income that would be reported on the variable costing income statement is

a.$589,810

b.$457,810

c.$492,020

d.$599,850

Answer 1

Answer to Question 7:

Fixed manufacturing overhead per unit = Fixed manufacturing overhead / Number of units produced
Fixed manufacturing overhead per unit = $144,000 / 6,000
Fixed manufacturing overhead per unit = $24.00

Cost per unit = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead
Cost per unit = $40.00 + $19.00 + $8.00 + $24.00
Cost per unit = $91.00

Answer to Question 9:

Variable production cost = Direct materials + Direct labor + Variable factory overhead
Variable production cost = $75,000 + $18,750 + $33,750
Variable production cost = $127,500

Variable cost per unit = Variable production cost / Units produced
Variable cost per unit = $127,500 / 150
Variable cost per unit = $850

Contribution margin = Sales - Variable cost per unit * Units sold - Variable operating expenses
Contribution margin = $600,000 - $850 * 120 - $5,980
Contribution margin = $492,020

Operating income = Contribution margin - Fixed factory overhead - Fixed operating expenses
Operating income = $492,020 - $30,000 - $4,210
Operating income = $457,810