Answer:
Operating income=$ 20,500
Explanation:
Under the variable costing system, units of production and inventory are valued using the variable cost per unit.
The variable cost per unit= direct material cost + direct labour cost + variable overhead
The operating income is calculated as follows:
Sales revenue - Cost of sales - Fixed cost
Variable cost per unit = (16+13+10+8)=47
Cost of sales = 47× 500 =23500
Fixed cost = 19,200+11800 =31,000
Sales revenue = ($150× 500) =75,000
Operating income = 75,000- 23,500- 31,000 = 20,500
Answer:
The operating income using variable costing if 500 units are sold is $ 20,500
Explanation:
Variable Costing System treats all Variable Manufacturing Costs as Part of Product Cost.
Fixed Manufacturing Costs are not accumulated in the product costs calculations but are treated as an expense during the period in which production occurs together with Non-Manufacturing Costs
Variable costing if 500 units are sold
First determine the amount of closing inventory
Opening units 0
Add Production 510
Available for Sale 510
Less Sold units 500
Closing units 10
Costing Calculations
Sales ($ 150 × 500) 75,000
Less Cost of Sales
Opening Stock 0
Direct materials ( $ 16 ×510 ) 8,160
Direct labor ( $ 13 ×510 ) 6,630
Variable manufacturing overhead ( $ 10 ×510) 5,100
Less Closing Stock ( $39 × 10) (390) ( 19,500)
Contribution 55,500
Less Expenses
Fixed Manufacturing Costs (19,200)
Variable selling and administrative costs ( $ 8 ×500) (4,000)
Fixed selling and administrative costs (11,800)
Net Income 20,500
