Kosco Corporation produces a single product. The company's absorption costing income statement for March follows: During March, the company's variable production costs were $8 per unit and its fixed manufacturing overhead totaled $5,000. Net operating income under variable costing for March would be:

Question

Kosco Corporation produces a single product. The company's absorption costing income statement for March follows:  During March, the company's variable production costs were $8 per unit and its fixed manufacturing overhead totaled $5,000. Net operating income under variable costing for March would be:

Quizplus · Accepted Answer

To calculate net operating income under variable costing, we need to exclude fixed manufacturing overhead from the calculation. 
Variable cost per unit = Direct materials + Direct labor + Variable manufacturing overhead = $3 + $5 + $8 = $16 
Contribution margin per unit = Selling price - Variable cost = $22 - $16 = $6 
Total units sold = 2,250 
Total variable costs = $8 x 2,250 = $18,000 
Total contribution margin = $6 x 2,250 = $13,500 
Net operating income under variable costing = Total contribution margin - Total variable costs = $13,500 - $18,000 = -$4,500 
Therefore, the correct answer is B) $7,000.

Kosco Corporation Produces a Single Product