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: $$\begin{array} { | l | r | }
\hline \text { Direct materials } & \$ 4.00 \text { per unit } \
\hline \text { Direct labor } & \$ 8.00 \text { per unit } \
\hline \text { Variable manufacturing overhead } & \$ 20,000 \text { per month } \
\hline \text { Fixed manufacturing overhead } & \$ 14,000 \text { per month } \
\hline \text { Operating expenses } & \$ 21,000 \text { per month } \
\hline & \
\hline \text { Beginning inventory } & 0 \text { units } \
\hline \text { Units produced } & 8,000 \text { units } \
\hline \text { Units sold } & 7,500 \text { units } \
\hline \text { Ending inventory } & 500 \text { units } \
\hline
\end{array}$$
-Refer to the table above,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: $$\begin{array} { | l | r | } 
\hline \text { Direct materials } & \$ 4.00 \text { per unit } \
\hline \text { Direct labor } & \$ 8.00 \text { per  unit } \
\hline \text { Variable manufacturing overhead } & \$ 20,000 \text {  per month } \
\hline \text { Fixed manufacturing overhead } & \$ 14,000 \text {  per month } \
\hline \text { Operating expenses } & \$ 21,000 \text {  per month } \
\hline & \
\hline \text { Beginning inventory } & 0 \text { units } \
\hline \text { Units produced } & 8,000 \text { units } \
\hline \text { Units sold } & 7,500 \text { units } \
\hline \text { Ending inventory } & 500 \text { units } \
\hline
\end{array}$$ 
-Refer to the table above,Using variable costing, how much is the net operating income for April?

Quizplus · Accepted Answer

Under variable costing, only variable costs are considered in calculating the cost of goods sold. The variable cost per unit is $12 ($4 direct materials + $8 direct labor). Total variable costs for 7,500 units sold are $90,000. The sales revenue is $150,000 (7,500 units x $20). The contribution margin is $60,000 ($150,000 - $90,000). Subtracting the fixed costs ($20,000 variable manufacturing overhead + $14,000 fixed manufacturing overhead + $21,000 operating expenses = $55,000) from the contribution margin gives a net operating income of $5,000. However, the correct answer is $6,250, indicating a possible error in the problem setup or assumptions.

Allston Products Sells a Special Kind of Effects Pedal for Musical