Brislin Gifts makes ceramic mugs and has the following amounts for 2017 (Assume the same unit costs in all years): $\begin{array}{lr}
\text { Selling price } & \$ 9.00 \text { per mug } \
\text { Variable production cost } & \$ 2.50 \text { per mug } \
\text { Variable selling cost } & \$ 1.10 \text { per mug } \
\text { Fixed production cost } & \$ 100,000 \text { per month }\
\text { Fixed selling and administrative cost }& \$ 60,000 \text { per month }\
\end{array}$ Production and sales in units for the first three months of 2017 are as follows: $\begin{array}{lll}\text { Year}&\text { Production}&\text { Sales }\
\text { January } & 50,000 & 44,000 \
\text { February } & 40,000 & 45,000 \
\text { March } & 44,000 & 46,000
\end{array}$
Inventory at January 1, 2017 consisted of 1,000 mugs.How much is net income for January using variable costing?

Question

Brislin Gifts makes ceramic mugs and has the following amounts for 2017 (Assume the same unit costs in all years): $\begin{array}{lr}
\text { Selling price } & \$ 9.00 \text { per mug } \
\text { Variable production cost } & \$ 2.50 \text { per mug } \
\text { Variable selling cost } & \$ 1.10 \text { per mug } \
\text { Fixed production cost } & \$ 100,000 \text { per month }\
\text { Fixed selling and administrative cost }& \$ 60,000 \text { per month }\
\end{array}$ Production and sales in units for the first three months of 2017 are as follows: $\begin{array}{lll}\text { Year}&\text {  Production}&\text { Sales }\
\text { January } & 50,000 & 44,000 \
\text { February } & 40,000 & 45,000 \
\text { March } & 44,000 & 46,000
\end{array}$
Inventory at January 1, 2017 consisted of 1,000 mugs.How much is net income for January using variable costing?

Quizplus · Accepted Answer

Under variable costing, only variable costs are included in product costs. For January, the contribution margin is calculated as (Selling price - Variable production cost - Variable selling cost) * Sales units = ($9.00 - $2.50 - $1.10) * 44,000 = $5.40 * 44,000 = $237,600. Fixed costs are $100,000 (production) + $60,000 (selling and administrative) = $160,000. Net income = Contribution margin - Fixed costs = $237,600 - $160,000 = $77,600.

Brislin Gifts Makes Ceramic Mugs and Has the Following Amounts