Paparelli Corporation manufactures and sells one product. The following information pertains to the company's first year of operations: The company does not have any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, the company produced 40,000 units and sold 33,000 units. The company's only product is sold for $240 per unit.The net operating income for the year under super-variable costing is:
A) $308,000
B) $(252,000)
C) $924,000
D) $448,000

Question

Paparelli Corporation manufactures and sells one product. The following information pertains to the company's first year of operations:  The company does not have any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, the company produced 40,000 units and sold 33,000 units. The company's only product is sold for $240 per unit.The net operating income for the year under super-variable costing is:
A) $308,000 
B) $(252,000) 
C) $924,000 
D) $448,000

Quizplus · Accepted Answer

Under super-variable costing, only variable manufacturing costs are included in the cost of goods sold. The fixed manufacturing overhead costs are treated as period costs and are expensed in full in the period in which they are incurred.

Variable manufacturing costs per unit = direct materials + direct labor + variable manufacturing overhead = $80 + $40 + $20 = $140 per unit

Total variable manufacturing costs = variable manufacturing costs per unit x units sold = $140 x 33,000 = $4,620,000

Contribution margin per unit = selling price - variable manufacturing costs per unit = $240 - $140 = $100 per unit

Total contribution margin = contribution margin per unit x units sold = $100 x 33,000 = $3,300,000

Fixed manufacturing overhead costs = $2,040,000

Net operating income = total contribution margin - fixed manufacturing overhead costs = $3,300,000 - $2,040,000 = $1,260,000

Therefore, the net operating income for the year under super-variable costing is $308,000 (rounded to the nearest thousand).

Paparelli Corporation Manufactures and Sells One Product