Illinois Company reported the following information about the production and sales of its only product during its first month of operations: $\begin{array}{lr}
\text { Sales } \$ 225 \text { per unit) } & \$ 405,000 \
\text { Direct materi als used } & \$ 176,000 \
\text { Direct labor } & \$ 100,000 \
\text { Variable factory overhead } & \$ 44,000 \
\text { Fixed factory overhead } & \$ 80,000 \
\text { Variable selling and administrative expenses } & \$ 20,000 \
\text { Fixed selling and administrative expenses } & \$ 10,000\\
\text { Ending inventories: }\\
\text { Direct materials } & -0- \
\text { WIP } & -0- \
\text { Finished goods } & 400 \text { units }
\end{array}$ The cost of goods sold under variable costing is_____.

Question

Quizplus · Accepted Answer

Under variable costing, only variable costs are included in the cost of goods sold. These include direct materials, direct labor, and variable factory overhead. The calculation is as follows: Direct materials used = $176,000, Direct labor = $100,000, Variable factory overhead = $44,000. Total variable cost = $176,000 + $100,000 + $44,000 = $320,000. Since there are no ending inventories of direct materials or work in process, and finished goods are not considered in the calculation of cost of goods sold under variable costing, the total variable cost of $320,000 represents the cost of goods sold.

Illinois Company Reported the Following Information About the Production and Sales