The Browning Company manufactures a single product;the standard costs per unit being variable manufacturing $8,fixed manufacturing $6.Selling and administrative costs are $2 per unit sold.The selling price is $20 per unit.Actual and budgeted fixed overhead is $900,000 for the year.Information about Browning's production activity for the year follows:
What is the profit under variable costing?

Question

Quizplus · Accepted Answer

To calculate profit under variable costing, we need to separate variable costs from fixed costs.

Total variable cost per unit = $8 + $2 (selling and administrative cost) = $10 per unit
Contribution margin per unit = Selling price per unit - Total variable cost per unit = $20 - $10 = $10 per unit
Total contribution margin for the year = Contribution margin per unit x Number of units sold = $10 x 100,000 units = $1,000,000

Total fixed manufacturing overhead for the year = $900,000
Total fixed selling and administrative costs for the year = $200,000

Total fixed cost for the year = $900,000 + $200,000 = $1,100,000

Profit under variable costing can be calculated as follows:
Profit = Total contribution margin - Total fixed cost
Profit = $1,000,000 - $1,100,000 = -$100,000

Since the profit is negative, we can conclude that Browning Company had a net loss of $100,000 for the year under variable costing.

Therefore, the best choice is B.

The Browning Company Manufactures a Single Product;the Standard Costs Per