Allston Products sells a special kind of effects pedal for musical performers. Each unit sells for $20.00. Additional data for the month of April, 2011, are as follows:
$$\begin{array} { | l | r | r | }
\hline \text { Direct materials } & \$ 4.00 & \text { per unit } \
\hline \text { Direct labor } & \$ 8.00 & \text { per unit } \
\hline \text { Variable manuf. overhead } & \$ 20,000 & \text { per month } \
\hline \text { Fixed manuf. ovehead } & \$ 14,000 & \text { per month } \
\hline \text { Operating Experses } & \$ 21,000 & \text { per month } \
\hline & & \
\hline \text { Bepinging inventory } & 0 & \text { units } \
\hline \text { Units produced } & 8,000 & \text { units } \
\hline \text { Units sold } & 7,500 & \text { units } \
\hline \text { Ending inventory } & 500 & \text { units } \
\hline
\end{array}$$
-
Using variable costing, how much is the net operating income for April?

Question

Allston Products sells a special kind of effects pedal for musical performers. Each unit sells for $20.00. Additional data for the month of April, 2011, are as follows:
$$\begin{array} { | l | r | r | } 
\hline \text { Direct materials } & \$ 4.00 & \text { per unit } \
\hline \text { Direct labor } & \$ 8.00 & \text { per unit } \
\hline \text { Variable manuf. overhead } & \$ 20,000 & \text { per month } \
\hline \text { Fixed manuf. ovehead } & \$ 14,000 & \text { per month } \
\hline \text { Operating Experses } & \$ 21,000 & \text { per month } \
\hline & & \
\hline \text { Bepinging inventory } & 0 & \text { units } \
\hline \text { Units produced } & 8,000 & \text { units } \
\hline \text { Units sold } & 7,500 & \text { units } \
\hline \text { Ending inventory } & 500 & \text { units } \
\hline
\end{array}$$
-
Using variable costing, how much is the net operating income for April?

Quizplus · Accepted Answer

Under variable costing, only variable costs are considered product costs. The variable cost per unit is $12 ($4 direct materials + $8 direct labor). Total variable costs for 7,500 units sold are $90,000. Total sales revenue is $150,000 (7,500 units x $20). Subtracting variable costs and fixed costs ($14,000 fixed manufacturing overhead + $21,000 operating expenses) from sales revenue gives a net operating income of $6,250.

Allston Products Sells a Special Kind of Effects Pedal for Musical