Question

Letcher Corporation manufactures and sells one product. The following information pertains to the company’s first year of operations: Variable costs per unit: Direct materials $ 108 Fixed costs per year: Direct labor $ 1,496,000 Fixed manufacturing overhead $ 5,848,000 Fixed selling and administrative expenses $ 3,001,400 The company does not have any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, the company produced 68,000 units and sold 65,600 units. The company’s only product is sold for $278 per unit. The company is considering using either super-variable costing or a variable costing system that assigns $22 of direct labor cost to each unit that is produced. Which of the following statements is true regarding the net operating income in the first year? Multiple Choice Variable costing net operating income exceeds super-variable costing net operating income by $206,400. Super-variable costing net operating income exceeds variable costing net operating income by $206,400. Variable costing net operating income exceeds super-variable costing net operating income by $52,800. Super-variable costing net operating income exceeds variable costing net operating income by $52,800.

Answer 1

Variable costing:
Sales		18236800	=65600*278
Variable cost of goods sold		8528000	=65600*(108+22)
Contribution margin		9708800
Fixed expenses:
Fixed manufacturing overhead	5848000
Fixed selling and administrative expense	3001400	8849400
Net operating income		859400
Super Variable costing:
Sales		18236800	=65600*278
Variable cost of goods sold		7084800	=65600*108
Contribution margin		11152000
Fixed expenses:
Direct labor	1496000
Fixed manufacturing overhead	5848000
Fixed selling and administrative expense	3001400	10345400
Net operating income		806600
Difference = 859400-806600 = $52800
Variable costing net operating income exceeds super-variable costing net operating income by $52,800