Question

Mccrone Corporation has provided the following data for its two most recent years of operation: Selling price per unit $ 59 Manufacturing costs: Variable manufacturing cost per unit produced: Direct materials $ 11 Direct labor $ 6 Variable manufacturing overhead $ 4 Fixed manufacturing overhead per year $ 88,000 Selling and administrative expenses: Variable selling and administrative expense per unit sold $ 4 Fixed selling and administrative expense per year $ 80,000 Year 1 Year 2 Units in beginning inventory 0 1,000 Units produced during the year 11,000 8,000 Units sold during the year 10,000 5,000 Units in ending inventory 1,000 4,000 The net operating income (loss) under variable costing in Year 1 is closest to: Multiple Choice $380,000 $340,000 $180,000 $172,000

Answer 1

Ans.	Option 4th   $172000
	*Calculation;
	Variable costing Income statement of Maccrone Corporation
	Particulars		Amount
	Sales (59*10000)		590000
	Less: variable cost of goods sold:
	Beginning inventory	0
	Add: variable cost of goods manufactured	231000
	Variable cost of goods available for sale	231000
	Less: Ending inventory (21*1000)	-21000	210000
	Gross contribution margin		380000
	Less: Variable selling & administrative expenses		40000
	Contribution margin		340000
	Less: Fixed expenses:
	Manufacturing		88000
	Selling and administrative expenses		80000
	Net Operating income		172000
	*Calculation of Variable unit product cost:
	Direct material	11
	Direct labor	6
	Variable manufacturing overhead	4
	Total unit product cost	21
	*Variable cost of goods manufactured = Unit product cost * Units produced during the year
			21 * 11000
			231000
	*Variable selling expenses = No. of units sold * selling expense per unit
		10000 * 4
		40000
	*Ending inventory = Unit product cost * No. of units in ending inventory