Octagonal Company has the following information for 2016: Selling price $150 per unit
Variable production costs $40 per unit produced
Variable selling and admin. Expenses $16 per unit sold
Fixed production costs $200,000
Fixed selling and admin. expenses $140,000 Units produced 10,000 units
Units sold 8,000 units
There were no beginning inventories.
What is the net income for Octagonal using the variable costing method?
A) $480,000
B) $412,000
C) $1,200,000
D) $600,000

Question

Quizplus · Accepted Answer

Using the variable costing method, we only include the variable costs in our calculations. Therefore, the total variable cost per unit would be $40 + $16 = $56. 
Total variable cost for 8,000 units sold = 8,000($56) = $448,000 
Contribution margin per unit = Selling price - Variable cost = $150 - $56 = $94 
Contribution margin for 8,000 units sold = 8,000($94) = $752,000 
Total fixed cost = Fixed production cost + Fixed selling and admin. expenses = $200,000 + $140,000 = $340,000 
Net income = Contribution margin - Total fixed cost = $752,000 - $340,000 = $412,000.

Octagonal Company Has the Following Information for 2016: Selling Price