Answer:
Trail Outfitters
Income statement using variable costing $
Sales 3,200,000 Less: Variable costs:
Beginning inventory (8,000 X $33) 264,000
Direct material (30,000 x $15) 450,000
Direct labour (30,000 x $15) 450,000
Variable manufacturing overhead (30,000 x $3) 90,000
1,946,000
Less: Closing stock 0
Less: Variable selling and administrative expenses 266,000
Contribution 1,680,000
Less: Fixed costs:
Fixed manufacturing overhead (30,000 x $25) 750,000
Fixed selling and administrative overhead 300,000
Net operating income 630,000
Opening inventory Net operating income
$ $
Variable costing 264,000 630,000
Absorption costing (464,000) (430,000)
Difference 200,000 200,000
The difference in net operating income of $200,000 is as a result of difference in opening inventory by $200,000.
Explanation:
In Variable costing, we need to obtain contribution, which is the excess of sales over variable cost. Variable cost is the aggregate of direct material, direct labour, variable manufacturing overhead and variable selling and administrative overhead.
Finally, we will deduct fixed costs from the contribution margin in order to obtain the net operating income. Fixed cost is the sum of fixed manufacturing cost and fixed selling and administrative cost.
