Swan Textiles Inc. produces and sells a decorative pillow for $98.00 per unit. In the first month of operation, 2,200 units were produced and 1,800 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes:

What is the operating income using variable costing?
A) $129,780
B) $69,480
C) $104,580
D) $56,080

Question

Swan Textiles Inc. produces and sells a decorative pillow for $98.00 per unit. In the first month of operation, 2,200 units were produced and 1,800 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes:

What is the operating income using variable costing?

What is the operating income using variable costing?
A) $129,780 
B) $69,480 
C) $104,580 
D) $56,080

Quizplus · Accepted Answer

Total sales = $98.00 x $1,800 = $176,400
Total variable costs = ($22.00 x $1,800) + ($3.90 x $1,800) = $46,620
Contribution margin = $176,400 - $46,620 = $129,780
The fixed costs component = (2,200 units × ($14 + $19.50) = $73,700
Therefore, the operating income under variable costing = $129,780 - $73,700 = $56,080