Pennsylvania Company reported the following information about the production and sales of its only product during its first month of operations: $\begin{array}{lr}
\text { Sales } \$ 225 \text { per unit) } & \$ 360,000 \
\text { Direct materi als used } & \$ 176,000 \
\text { Direct labor } & \$ 100,000 \
\text { Variable factory overhead } & \$ 44,000 \
\text { Fixed factory overhead } & \$ 80,000 \
\text { Variable selling and administrative expenses } & \$ 20,000 \
\text { Fixed selling and administrative expenses } & \$ 10,000\\
\text { Ending inventories: }\\
\text { Direct materials } & -0- \
\text { WIP } & -0- \
\text { Finished goods } & 400 \text { units }
\end{array}$ The operating income loss) under variable costing is_____.

Question

Quizplus · Accepted Answer

Variable costing includes all variable production costs (direct materials, direct labor, and variable factory overhead) in the cost of goods sold and excludes fixed factory overhead, which is treated as a period cost. To calculate the operating income (or loss) under variable costing, we first need to determine the cost of goods sold and then subtract it from sales, along with variable selling and administrative expenses. Fixed selling and administrative expenses are also considered period costs under variable costing.1. Calculate the total variable production costs:   - Direct materials used: $176,000   - Direct labor: $100,000   - Variable factory overhead: $44,000   Total variable production costs = $176,000 + $100,000 + $44,000 = $320,0002. Determine the number of units produced and sold:   - Sales revenue is $360,000, and the sales price per unit is $225.   - Number of units sold = $360,000 / $225 = 1,600 units3. Since there are 400 units in ending finished goods inventory and no beginning inventory (as it's the first month of operations), the company produced 2,000 units (1,600 units sold + 400 units in inventory).4. Calculate the variable cost per unit:   - Variable cost per unit = Total variable production costs / Total units produced   - Variable cost per unit = $320,000 / 2,000 units = $160 per unit5. Calculate the cost of goods sold under variable costing:   - COGS (variable costing) = Variable cost per unit * Number of units sold   - COGS (variable costing) = $160 * 1,600 = $256,0006. Calculate the operating income (loss) under variable costing:   - Operating income (loss) = Sales - COGS (variable costing) - Variable selling and administrative expenses - Fixed selling and administrative expenses   - Operating income (loss) = $360,000 - $256,000 - $20,000 - $10,000 = $74,000 (loss)However, the provided options do not match the calculated result based on the given data and the steps outlined above. It appears there may have been a mistake in the calculation or in the interpretation of the options. Given the options provided, none directly match the calculated outcome. Please review the calculation steps and the provided data for any potential errors or omissions.

Pennsylvania Company Reported the Following Information About the Production and Sales