Question

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

Selling price	$112
Units in beginning inventory	0
Units produced	5,500
Units sold	5,300
Units in ending inventory	200
Variable costs per unit:
Direct materials	$33
Direct labour	$37
Variable manufacturing overhead	$5
Variable selling and administrative	$6
Fixed costs:
Fixed manufacturing overhead	$71,500
Fixed selling and administrative	$79,500

What is the net operating income for the month under variable costing?

Question 8 options:

1)

$2,600

2)

$2,700

3)

$45,100

4)

$13,300

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Answer 1

Calculation of net Operating Income under Variable Costing

Particulars		Amount
Sales (5300 units X $112)		$593,600
Less: Variable cost of goods sold:
Opening Inventory	Nil
Add: Variable cost of goods manufactured [5500 units X ($33 + $37 + $5)]	$412,500
Variable cost of goods available for sale ( Nil + $412,500)	$412500
Less: Closing Inventory [ 200 units X ($33 + $37 + $5) ]	$15,000	$397,500
Gross Contribution Margin		$196,100
Less: Variable Selling and Administrative Expenses ( 5300 units X $6)		$31,800
Contribution Margin		$164,300
Less: Fixed Manufacturing Overhead		$71,500
Less: Fixed Selling and Administrative Overhead		$79,500
Net Operating Income		$13,300