Wahler Corporation manufactures and sells one product. In the company's first year of operations, the variable cost consisted solely of direct materials of $85 per unit. The annual fixed costs were $640,000 of direct labor cost, $2,208,000 of fixed manufacturing overhead expense, and $1,140,000 of fixed selling and administrative expense. The company does not have any variable manufacturing overhead costs or variable selling and administrative costs. During its first year of operations, the company produced 32,000 units and sold 30,000 units. The company's only product is sold for $249 per unit. The net operating income for the year under super-variable costing is:
A)$1,110,000
B)$932,000
C)$972,000
D)$762,000

Question

Quizplus · Accepted Answer

Under super-variable costing, only variable manufacturing costs are expensed in the period they are incurred and fixed manufacturing costs are deferred to future periods. The net operating income for the year under super-variable costing can be calculated as follows:

Sales revenue: 30,000 units x $249 per unit = $7,470,000
Variable manufacturing cost: 30,000 units x $85 per unit = $2,550,000
Variable selling and administrative expense: 30,000 units x $0 per unit = $0
Contribution margin: $7,470,000 - $2,550,000 - $0 = $4,920,000
Fixed manufacturing cost deferred: (32,000 units - 30,000 units) x ($640,000 + $2,208,000) ÷ 32,000 units = $272,000
Fixed selling and administrative expense: $1,140,000
Net operating income under super-variable costing: $4,920,000 - $272,000 - $1,140,000 = $3,508,000

Therefore, the correct answer is B) $932,000.

Wahler Corporation Manufactures and Sells One Product