Question

Product sales: 1,000 units at $10 eachVariable manufacturing costs: $5.50 per unitFixed manufacturing overhead: $1,200Variable selling and administrative costs: $.50 per unit soldFixed selling and administrative costs: $1,000No beginning inventoryUnits produced: 1,200Casey’s operating income under variable (direct) costing isA.$700B.$2,300C.$1,800D.$600

Answer 1

Answer:

The correct answer to the following question is option C)  $1800.

Explanation:

Given information -

Product sales - 1000 units

Sales price - $10

Variable manufacturing cost - $5.50 per unit

Fixed manufacturing overhead - $1200

Variable selling and administrative costs - $.50 per unit

Fixed selling and administrative cost - $1000

Units produced - 1200 units

Manufacturing contribution per unit = Sales price per unit - Variable              

                                                                                manufacturing cost per unit

= $10 -$5.50

= $4.50

Manufacturing contribution margin -

Number of units sold x manufacturing contribution per unit

= 1000 x $4.50

= $4500

While the contribution margin per unit -

$4.50 - $.50

= $4

which means the total contribution margin would be 1000 x $4

= $4000

And now subtracting Fixed manufacturing overhead and Fixed selling and administrative costs from the total contribution margin to get the operating income -

$4000 - $1200 - $1000

= $1800