Question

QUESTION 7

The Heartlake Corporation manufactures and sells toy gyroscopes. The following data is related to sales and production of the toy gyroscopes for last year.  

Selling price per unit	$8.20
Variable manufacturing costs per unit	$1.84
Variable selling and administrative expenses per unit	$4.45
Fixed manufacturing overhead (in total)	$79,000
Fixed selling and administrative expenses (in total)	$83,000
Units produced during the year	520,000
Units sold during year	190,000

  
Using variable costing, what is the contribution margin for last year?

$349,600

$2,753,100

$1,558,000

$362,900

QUESTION 8

How is operating income affected if the number of units sold exceeds the number of units produced?

		Operating income would be higher under a variable costing income statement.
		Operating income would be higher under an absorption costing income statement.
		Operating income would be the same under both a variable costing and absorption costing income statement.
		Operating income would be lower under a variable costing income statement.

Answer 1

Total variable costs = Variable manufacturing costs per unit + Variable selling and administrative expenses per unit

= $1.84 + $4.45

= $6.29

Contribution margin per unit = Selling price per unit - Total variable costs per unit

= $8.2 - $6.29

= $1.91

The contribution margin for last year = 190,000 units sold * $1.91 per unit

= $362,900

The answer is $362,900

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If the number of units sold exceeds the number of units produced, the operating income under variable costing whill be higher compared to operating costing.

The answer is - Operating income would be higher under a variable costing income statement.