Question

Start Me Up Inc. manufactures a caffeinated energy drink that sells for $4.70 each. The results for its first year of operations appear in the table below:

	Projections
Number of drinks produced		51,000
Number of drinks sold		46,600
Direct materials per drink	$	0.62
Direct labor per drink	$	0.32
Variable manufacturing overhead per drink	$	0.22
Total fixed manufacturing overhead	$	33,660
Total fixed selling and administrative costs	$	53,500

Required:

1. Compute the operating income for the first year under full costing.

2. Compute the operating income for the first year under variable costing.

Answer 1

1. unit product cost	Full costing	variable costing
Direct materials	0.62	0.62
Direct labor	0.32	0.32
variable manufacturing overhead	0.22	0.22
fixed manufacturing overhead (33660/51000)	0.66	0
Unit product cost	1.82	1.16
Operaitng income under full costing
Sale revenue = units sold* selling price (46600*4.70)	219,020.00
less: cost of goods sold (units sold * unit product cost ) = 46600*1.82	(84,812.00)
less: selling and administrative expenses	(53,500.00)
Operaitng income under full costing	80,708.00
Operaitng income under variable costing
Sale revenue = units sold* selling price (46600*4.70)	219,020.00
less: cost of goods sold (units sold * unit product cost ) = 46600*1.16	(54,056.00)
less: fixed manufacturing expenses	(33,660.00)
less: selling and administrative expenses	(53,500.00)
Operaitng income under variable costing	77,804.00