Question

In: Accounting

Hearables inc manufactures audio headsets.The varaible cost per headset is as follows: Direct material $2.50 Direct...

Hearables inc manufactures audio headsets.The varaible cost per headset is as follows:

Direct material $2.50
Direct labour $1.75
Variable manufacturing overhead $2.25
Sales commission $0.75
Total variable cost per headset $7.25

Other costs are fixed and include selling costs of $75,000 per year administrative costs of $45,000 annually and fixed manufacturing overhead of $270,000 per year.There was no beginning work-in-process of finished goods inventory.During the past year, a total of 50,000 headsets were manufactured, and 45,000 headsets were sold at $25 each.

What would the operating profit be for the year under variable costing?

Solutions

Expert Solution

  • All working forms part of the answer
  • Answer calculation:

Working

Amount

Sales

[45,000 units x $ 25]

$                                 1,125,000.00

Variable costs:

Direct Material

[45,000 units x $ 2.50]

$                                     112,500.00

Direct Labor

[45,000 units x $ 1.75]

$                                       78,750.00

Variable Manufacturing Overhead

[45,000 units x $ 2.25]

$                                     101,250.00

Sales Commission

[45,000 units x $ 0.75]

$                                       33,750.00

Total Variable cost

$                                     326,250.00

Contribution margin

[45,000 units x $ (25 - 7.25)]

$                                     798,750.00

Fixed Costs:

Selling costs

$                                       75,000.00

Administrative Costs

$                                       45,000.00

Fixed manufacturing Overheads

$                                     270,000.00

Total Fixed Costs

$                                     390,000.00

Net Operating Profits (under Variable costing)

$                                     408,750.00


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