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A business operated at 100% of capacity during its first month, with the following results: Sales...

A business operated at 100% of capacity during its first month, with the following results:

Sales (112 units) $560,000
Production costs (140 units):
   Direct materials $70,000
   Direct labor 17,500
   Variable factory overhead 31,500
   Fixed factory overhead 28,000 147,000
Operating expenses:
   Variable operating expenses $5,860
   Fixed operating expenses 3,680 9,540

The amount of operating income that would be reported on the variable costing income statement is

a.$559,860

b.$427,260

c.$458,940

d.$550,460

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Expert Solution

Answer- The amount of operating income that would be reported on the variable costing income statement is =$427260 (Option b).

Explanation- Unit product cost under Variable costing:-Direct materials + Direct Labor+ Variable manufacturing overhead + fixed manufacturing overhead

=($70000+$17500+$31500)/140 units

= $119000/$140 units

= $850 per unit

Income statement (Using variable costing approach)
Particulars Amount
$
Sales (a) 560000
Less:- Variable cost of goods sold (b)
Opening inventory Nil
Add:- Variable cost of goods manufactured 119000
Direct materials 70000
Direct labor 17500
Variable factory overhead 31500
Variable cost of goods available for sale 119000
Less:- Closing inventory 28 units*$850 per unit 23800 95200
Gross contribution margin C= a-b 464800
Less:-Variable operating expenses 5860
Contribution margin 458940
Less:- Fixed costs
Factory overhead 28000
Operating expenses 3680
Net Income 427260

ekkarill92 answered 2 years ago
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