Q15E - Horngren'S Financial And Managerial Accounting

Question

Question: Computing variable costing operating income Refer to the information for Concord, Inc. 

Requirements:

1. Using variable costing, calculate the unit product cost. 
2. Prepare an income statement using the contribution margin format.

Use the following information for Exercises E21-14 and E21-15. 

Concord, Inc. has collected the following data for November (there are no beginning inventories): 

Units produced and sold                                500 units                                                                                                                             Sales price                                                       $ 450 per unit                                                                                                                        Direct materials                                               64 per unit                                                                                                                                     Direct labor                                                      68 per unit                                                                                                                                  Variable manufacturing overhead                 26 per unit                                                                                                                                       Fixed manufacturing overhead                7,500 per month                                                                                                            Variable selling and administrative costs    15 per unit                                                                                                                Fixed selling and administrative costs          4,400 per month                                                                                            

 

Step-by-Step Solution

Answer

Answer

 

1. The total unit product cost is $158
2. Contribution margin is $138,500 and operating income is $126,600.

 

Step 1: Calculation of unit product cost using variable costing (1)

Particulars	Amount
Direct materials	$64
Direct labor	$68
Variable manufacturing overhead	$26
Total unit product cost	$158

Step 2: Income statement using contribution margin format

Particulars	Amount
Net sales revenue ($450x500)	$225,000
Less: Variable costs
Variable cost of goods sold ($158x500)	$79,000
Variable selling and administrative cost ($15x500)	$7,500
Contribution margin	$138,500
Less: Fixed costs
Fixed costs of goods sold	$7,500
Fixed selling and administrative cost	$4,400
Operating Income	$126,600