Question

Hayes Company operated at normal capacity during the current year, producing 54814 units of its single product. Sales totalled 45978 units at an average price of $24.62 per unit. Variable manufacturing costs were $11.80 per unit, and variable marketing costs were $4.92 per unit sold. Fixed costs were incurred uniformly throughout the year and amounted to $159038 for manufacturing and $54559 for marketing. There were no opening inventories.

What is Hayes operating income (loss) under direct (variable) costing?

Select one:

a. $149629

b. $184061

c. $175266

d. $45364

In the month just ended Nelson Industries produced 43267 units and sold 30087 units. There were 4724 units in finished goods inventory at the start of the month. Manufacturing costs are stable from month to month. The fixed overhead rate was $13 per unit. Nelson uses absorption costing. If Nelson changed to variable costing, the difference in net income would have been:

Select one:

a. $0

b. $171340

c. $232752

d. $61412

Answer 1

Construct The Variable Costing Income Statement under FIFO
				YEAR 1
Sales					1,131,978
Less: Variable cost
variable cost of goods sold				542,540
Variable selling expense				226,212	768,752
Contribution margin					363,226
Fixed expense:
Fixed Manufacturing overheads					159,038
Fixed selling expense					54,559
Net operating Income					149,629
Answer is a. $ 149629
Increase in Inventory units (43267-30087)				13,180
Fixed Mfg cost per unit				13
Difference in Income				171340
Answer is b. 171340