Question

Corporation has provided the following cost data for last year when 100,000 units were produced

Raw materials: $200,000

Direct Labor: $100,000

Manufacturing Overhead: $200,000

Sell & Admin Expense: $150,000

All costs are variable except for $100,000 of manufacturing overhead and $100,000 sell & admin expense. There are no beginning or ending inventories.

If the selling price is $10 per unit, the net operation income from producing and selling 110,000 units would be:

A) $560,000

B) $385,000

C) $405,000

D) $450,000

Answer 1

C) $405,000

Step-1:Calculation of variable cost per unit at 100,000 units
		Total variable costs	Total units	Variable Cost per unit
		a	b	c=a/b
Raw materials		$        2,00,000	1,00,000	$       2.00
Direct Labor		$        1,00,000	1,00,000	$       1.00
Manufacturing Overhead		$        1,00,000	1,00,000	$       1.00
Sell & Admin Expense		$            50,000	1,00,000	$       0.50
Note:
Variable cost per unit remains same and fixed costs in total remains same.
Step-2:Calculation of net operation income from producing and selling 110,000 units
				Per Unit	Total
		Sales		$    10.00	$       11,00,000
		Variable costs:
		Raw materials		$       2.00	$          2,20,000
		Direct Labor		$       1.00	$          1,10,000
		Manufacturing Overhead		$       1.00	$          1,10,000
		Sell & Admin Expense		$       0.50	$             55,000
		Contribution Margin		$       5.50	$          6,05,000
		Fixed Costs:
		Manufacturing Overhead			$          1,00,000
		Sell & Admin Expense			$          1,00,000
		Net Operation income			$          4,05,000