Q4SE - Horngren'S Financial And Managerial Accounting

Question

Calculating contribution margin and operating income, variable costing 

Calculate the contribution margin and operating income for June using variable costing.

Use the following information for Short Exercises S21-4 and S21-5. 

Dracut Company reports the following information for June:

Net Sales Revenue                                            $ 755,000                                             Variable Cost of Goods Sold                               240,000                                                 Fixed Cost of Goods Sold                                   198,000                                                       Variable Selling and Administrative Costs        168,000                                  Fixed Selling and Administrative Costs             79,000

 

Step-by-Step Solution

Answer

Answer

 

Dracut Company’s gross profit is $347,000 and operating income is $70,000.

 

Step 1: Calculation of contribution margin using variable costing

Particulars	Amount
Net sales revenue	$755,000
Less: Variable costs
Variable cost of goods sold	$240,000
Variable selling and administrative costs	$168,000
Contribution margin	$347,000

Step 2: Statement showing operating income

Particulars	Amount
Net sales revenue	$755,000
Less: Variable costs
Variable cost of goods sold	$240,000
Variable selling and administrative costs	$168,000
Contribution margin	$347,000
Less: Fixed costs ($198,000+$79,000)	$277,000
Operating Income	$70,000