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 1 year ago

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