Choice "D" is correct. Under variable costing, all fixed factory overhead is treated as a period cost and is expensed in the period incurred. The cost of inventory includes only variable manufacturing costs, so the cost of goods sold includes only variable costs. Also, the variable selling, general, and administrative expenses are part of total variable costs. | Unit Price
| Units
| | Total
|
|---|
Sales | $80.00 | 4,500 | | $ 360,000 | Direct Materials | $21.00 | 4,500 | $ 94,500 | | Direct Labor | $10.00 | 4,500 | 45,000 | | Variable Mfg O/H | $3.00 | 4,500 | 13,500 | | Variable S&A | $6.00 | 4,500 | 27,000 | | Total Variable Costs | | | | 180,000 | | | | | | Contribution Margin | | | | 180,000 | | | | | | Fixed Mfg O/H | | | 76,000 | | Fixed S&A | | | 58,000 | | Total Fixed Costs | | | | 134,000 | Net Income | | | | $ 46,000 |
Choice "c" is incorrect. The net income is not the contribution margin.
Choice "a" is incorrect per the above computation.
Choice "b" is incorrect. The contribution margin is not the difference between sales and fixed costs ($360,000 - $134,000$226,000).
|
