Costmore Manufacturing has provided the following operating results for its first year operations:
$\begin{array}{lr}
\text { Beginning inventory of finished goods } & 0 \
\text { Units produced (no work in process) } & 22,000 \
\text { Units sold } & 18,000 \
\text { Units in ending inventory of finished goods } & 4,000\\text { Sales price }&\$55\text { per unit }\
\text { Variable manufacturing costs }&\$25\text { per unit }\\text { manufactured Variable selling and }\text { administrative expenses }&\$ 7 \text { per unit }\\text { sold Fixed manufacturing }\text { costs for the year } & \$ 110,000 \
\text { Fixed selling and administrative expenses for the year } & \$ 124,000
\end{array}$
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Using direct costing, the marginal income on sales is:
A)$550,000
B)$540,000
C)$200,000
D)$414,000

Question

Quizplus · Accepted Answer

Marginal income on sales, under direct costing, is calculated by subtracting variable costs from sales revenue. Sales revenue is 18,000 units sold at $55 per unit, which equals $990,000. Variable costs include variable manufacturing costs ($25 per unit for 18,000 units = $450,000) and variable selling and administrative expenses ($7 per unit for 18,000 units = $126,000). Total variable costs are $450,000 + $126,000 = $576,000. Therefore, marginal income on sales is $990,000 - $576,000 = $414,000.

Costmore Manufacturing Has Provided the Following Operating Results for Its