A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: What is the net operating income for the month under variable costing?
A)$15,000
B)$12,100
C)$2,900
D)$5,300

Question

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:  What is the net operating income for the month under variable costing?
A)$15,000 
B)$12,100 
C)$2,900 
D)$5,300

Quizplus · Accepted Answer

To calculate net operating income, we need to subtract total variable expenses and fixed expenses from total revenues.

Total revenues = Sales - Cost of goods sold
= $75,000 - $45,000
= $30,000

Total variable expenses = Variable cost per unit x Number of units sold
= $20 x 1,500
= $30,000

Contribution Margin = Total revenue - Total variable expenses
= $30,000 - $30,000
= $0

Net operating income (loss) = Contribution Margin - Fixed expenses
= $0 - $12,100
= -$12,100

However, we are asked to calculate net operating income under variable costing, which means that fixed manufacturing overhead costs are not included in the cost of goods sold. Instead, they are treated as period expenses and are deducted from total revenues to calculate the net operating income.

Fixed manufacturing overhead costs = $17,000
Net operating income under variable costing = Contribution Margin - Fixed expenses
= $0 - $17,000 + $4,900
= -$12,100

Therefore, the net operating income for the month under variable costing is $12,100 (choice B).

A Manufacturing Company That Produces a Single Product Has Provided