Question

Oak Mart, a producer of solid oak tables, reports the following data from its second year of business.

Sales price per unit	$	310	per unit
Units produced this year		120,000	units
Units sold this year		123,250	units
Units in beginning-year inventory		3,250	units
Beginning inventory costs
Variable (3,250 units × $130)	$	422,500
Fixed (3,250 units × $75)		243,750
Total	$	666,250
Manufacturing costs this year
Direct materials	$	42	per unit
Direct labor	$	60	per unit
Overhead costs this year
Variable overhead	$	3,000,000
Fixed overhead	$	7,000,000
Selling and administrative costs this year
Variable	$	1,350,000
Fixed		4,200,000

1. Prepare the current-year income statement for the company using variable costing.

Answer 1

OAK MART
INCOME STATEMENT (Variable Costing Method)
Sales ($330 * 123,250) (A)		$40,672,500
Less: Variable Cost
Beginning Inventory:
Variable Costs	$422,500
Manufacturing Cost this year
Direct Materials ($42 * 120,000)	$5,040,000
Direct Labor ($60 * 120,000)	$7,200,000
Variable Overhead costs	$3,000,000
Total variable costs available	$15,662,500
Less: Ending Finished Goods Inventory	$0
Variable Cost of Goods Sold	$15,662,500
Variable Selling & Administrative expenses	$1,350,000
Total Variable costs (B)		$17,012,500
Contribution Margin (C = A - B)		$23,660,000
Less: fixed expenses (D)
Fixed overhead costs	$7,000,000
Fixed Selling & Administrative costs	$4,200,000	-$11,200,000
Net Income / (Loss) (E = C - D)		$12,460,000

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