Question

Top Disc manufactures flying disks. The following information is available for the year, the company’s first year in business when it produced 715,000 units. Revenue of $990,000 was generated by the sale of 396,000 flying disks.

	Variable Cost	Fixed Cost
Production
Direct material	$330,000
Direct labor	220,000
Overhead	165,000	$247,500
Selling and administrative	198,000	220,000

a. What is the variable production cost per unit?
b. What is the total contribution margin per unit?
c. Prepare a variable costing income statement.
Note: Only use a negative sign to indicate a net loss (if applicable).

Income Statement
For the Year
Sales revenue
Less variable costs
Cost of goods sold
Selling and administrative
Contribution margin
Less fixed expenses
Manufacturing overhead
Selling and administrative
Net income (loss)

Answer 1

	Variable Cost
Production
Direct material	$330,000
Direct labor	220,000
Overhead	165,000
Total	715,000
Divided by:	/ 715,000 units
Variable production cost per unit	$ 1.00

Sales	990,000
Less: Variable production cost (396,000*1)	396,000
Less: Variable selling expenses	198,000
Contribution margin	396,000
Divided by:	/ 396,000 units
Contribution margin per unit	$ 1.00

Income Statement
For the Year
Sales revenue	990,000
Less: variable costs
Cost of goods sold	396,000
Selling and administrative	198,000
Contribution margin	396,000
Less fixed expenses
Manufacturing overhead	247,500
Selling and administrative	220,000
Net income (loss)	-71,500