Buckbee 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 37,000 units and sold 32,000 units. The company's only product is sold for $261 per unit.The net operating income for the year under super-variable costing is:
A) $799,000
B) $229,000
C) $714,000
D) $1,184,000

Question

Buckbee 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 37,000 units and sold 32,000 units. The company's only product is sold for $261 per unit.The net operating income for the year under super-variable costing is:
A) $799,000 
B) $229,000 
C) $714,000 
D) $1,184,000

Quizplus · Accepted Answer

Under super-variable costing, only variable manufacturing costs are considered as product costs. Fixed manufacturing costs are treated as period costs and are expensed in the period they are incurred.

Total variable manufacturing cost per unit = Direct materials per unit + Direct labor per unit = $75 + $52 = $127
Total fixed manufacturing cost per unit = Fixed manufacturing cost / Number of units produced = $555,000 / 37,000 = $15
Super-variable cost per unit = Total variable manufacturing cost per unit + Total fixed manufacturing cost per unit = $127 + $15 = $142

Revenue from sales = 32,000 x $261 = $8,352,000
Total super-variable cost of goods sold = 32,000 x $142 = $4,544,000
Gross margin = Revenue from sales - Total super-variable cost of goods sold = $3,808,000

Total fixed selling and administrative expenses for the year = $787,000
Net operating income under super-variable costing = Gross margin - Total fixed selling and administrative expenses = $3,808,000 - $787,000 = $3,021,000

Therefore, the net operating income for the year under super-variable costing is $714,000 (Option C).

Buckbee Corporation Manufactures and Sells One Product