Selling price per unit $ 59 Manufacturing costs: Variable manufacturing cost per unit produced: Direct materials $ 11 Direct labor $ 6 Variable manufacturing overhead $ 4 Fixed manufacturing overhead per year $ 88,000 Selling and administrative expenses: Variable selling and administrative expense per unit sold $ 4 Fixed selling and administrative expense per year $ 80,000 Year 1 Year 2 Units in beginning inventory 0 1,000 Units produced during the year 11,000 8,000 Units sold during the year 10,000 5,000 Units in ending inventory 1,000 4,000 The net operating income (loss) under variable costing in Year 1 is closest to:Multiple Choice a. $380,000 b. $340,000 c. $180,000 d. $172,000

b. $340,000

Explanation:

Given

Selling price per unit $ 59

Manufacturing costs:

Variable manufacturing cost per unit produced:

Direct materials $ 11

Direct labor $ 6

Variable manufacturing overhead $ 4

Fixed manufacturing overhead per year $ 88,000

Selling and administrative expenses:

Variable selling and administrative expense per unit sold $ 4

Fixed selling and administrative expense per year $ 80,000

We calculate the Variable Cost of Goods sold by the variable costs allocated to the units sold.For this we deduct the ending inventory costs from the unit produced costs.

Year 1

Units sold during the year 10,000    

Sales Price                              $59

Sales                                  $ 590,000

Units in beginning inventory 0  

Units produced during the year 11,000

Manufacturing Variable Costs per unit  (11+6+4)= $ 21

Variable Manufacturing Costs= $231,000

Less Ending Inventory (1,000 *21)= 21,000

Variable Cost of Goods Sold = $210,000

Add Variable selling and administrative expenses ( 4*10,000)= 40,000

Total Variable Costs = $250,000

Contribution Margin $340,000

The correct answer is D. $ 172,000

Explanation:

Variable costing Year 1

Sales (10,000 * $ 59)     (A)                      $ 590,000

Variable manufacturing costs

Direct materials (11,00 * $ 11)                    $ 121,000

Direct labor (11,000 * $ 6)                         $ 66,000

Variable overhead $ 4 (11,000 * $ 4)        $ 44,000

Cost of goods available for sale  (B)         $ 231,000

Ending inventory (1,000 * $ 21)  (C)            $  21,000

Gross contribution margin  (A - B + C)       $ 380,000

Variable selling & admin expense             $   40,000

Contribution margin                                    $ 340,000    

Less fixed costs

Fixed manufacturing overhead                  $  88,000

Fixed selling and administrative expense $  80,000

Net operating income                                 $ 172,000

a.