Question

QUESTION 18

Aaron Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price	$	90
Units in beginning inventory		0
Units produced		3,400
Units sold		3,000
Units in ending inventory		400

Variable costs per unit:
Direct materials	$	21
Direct labor	$	38
Variable manufacturing overhead	$	6
Variable selling and administrative expense	$	4
Fixed costs:
Fixed manufacturing overhead	$	54,400
Fixed selling and administrative expense	$	3,000

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

		$(20,400)
		$5,600
		$12,000
		$6,400

Answer 1

	Under Variable costing, only variable costs are included
	Therefore product cost is
	Direct Materials			$21
	Direct Labor			$38
	Variable Manufacturing overhead			$6
				$65
	Aaron Corporation
	Income Statement
	Sales Revenue (90*3000)			270000
	Less : Cost of Goods Sold (65*3000)			195000
	Variable Selling and Administrative Expenses (4*3000)			12000
	Contribution Margin			63000
	Less : Fixed Costs
	Fixed Manufacturing Costs			$54,400
	Fixed Selling and Administrative expense			$3,000
	Net Operating Income			$5,600
	Net operating income for the month under variable costing						$5,600