Question

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

Selling price	$	141
Units in beginning inventory		1,050
Units produced		8,950
Units sold		9,050
Units in ending inventory		950

Variable costs per unit:
Direct materials	$	31
Direct labor	$	48
Variable manufacturing overhead	$	12
Variable selling and administrative expense	$	22
Fixed costs:
Fixed manufacturing overhead	$	71,600
Fixed selling and administrative expense	$	164,800

The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.

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

Answer 1

Income statement

Sales (9,050 x 141)		1,276,050
Variable cost of goods sold:
Beginning inventory (1,050 x 91)	95,550
Direct materials (8,950 x 31)	277,450
Direct labor (8,950 x 48)	429,600
Variable manufacturing overhead (8,950 x 12)	107,400
Ending inventory (950 x 91)	- 86,450
Variable cost of goods sold		- 823,550
Variable selling and administrative expense (9,050 x 22)		- 199,100
Contribution margin		253,400
Fixed costs:
Fixed manufacturing overhead		- 71,600
Fixed selling and administrative expense		- 164,800
Net operating income		$17,000

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead

= 31 + 48 + 12

= $91

Net operating income = $17,000