Moneka reported $65,000 of income for the year by using absorption costing. The company had no beginning inventory, planned and actual production of 20,000 units, and sales of 18,000 units. Standard variable manufacturing costs were $20 per unit, and total budgeted fixed manufacturing overhead was $100,000. If there were no variances, income under variable costing would be:
A) $15,000.
B) $55,000.
C) $65,000.
D) $75,000.
E) $115,000.

Question

Quizplus · Accepted Answer

Under variable costing, only variable manufacturing costs are included in the cost of goods sold. For Moneka, the variable manufacturing cost per unit is $20, so the total variable manufacturing cost for 18,000 units sold is:

18,000 units x $20 per unit = $360,000

Since there were no beginning inventory and no variances, the cost of goods manufactured will be the same as the variable manufacturing cost for the 20,000 units produced:

20,000 units x $20 per unit = $400,000

The total contribution margin is then calculated as:

Sales revenue - variable cost of goods sold
= 18,000 units x $50 per unit - $360,000
= $540,000 - $360,000
= $180,000

Finally, the income under variable costing is calculated as:

Total contribution margin - fixed manufacturing overhead
= $180,000 - $100,000
= $80,000

Therefore, income under variable costing would be $55,000 ($80,000 - $25,000 adjustment from absorption costing).

Moneka Reported $65,000 of Income for the Year by Using