Question

A business operated at 100% of capacity during its first month and incurred the following costs:

Production costs (5,000 units):
Direct materials-$70,000

Direct labor-20,000

Variable factory overhead-10,000

Fixed factory overhead-20,000

total $102,000

Operating expenses:
Variable operating expenses-$17,000

Fixed operating expenses-1,000

total $18000

Prepare a variable income statement assuming 1000 units remain unsold at the end of the month and sales total $160,000 for the month

Answer 1

Calculate income from operation
		Amount($)
Sales		1,60,000
Less: Variable cost of production
Direct material	56,000
Direct labour	16,000
Variable factory overhead	8,000	-80,000
Manufacturing margin		80,000
Variable operating expense		-17,000
Contribution margin		63,000
Less; Fixed expense
Fixed factory overhead	2,000
Fixed operating expense	1,000	-3,000
Income from operation		60,000
Direct material =(70,000/5,000*4,000)=56,000
Direct labour =(20,000/5,000*4,000)= 16,000
Variable factory overhead= (10,000/5,000*4,000)=8,000
Note : Fixed factory overhead wrongly enter in problem $20,000 instant of 2000
Calculation Fixed factory overhead=102,000-70,000-20,000-10,000=$2,000