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?

1)

$2,600

2)

$2,700

3)

$45,100

4)

$13,300

Answer 1

Variable cost per unit = Direct materials + Direct labor + Variable manufacturing overhead + Variable selling and administrative expense
Variable cost per unit = $33 + $37 + $5 + $6
Variable cost per unit = $81

Contribution margin per unit = Selling price per unit - Variable cost per unit
Contribution margin per unit = $112 - $81
Contribution margin per unit = $31

Fixed expenses = Fixed manufacturing overhead + Fixed selling and administrative expense
Fixed expenses = $71500 + $79500
Fixed expenses = $151,000

Net operating income = Contribution margin per unit * Units sold - Fixed expenses
Net operating income = ($31 * 5300) - $151,000
Net operating income = $13,300 i.e. Option D