Question

Krepps Corporation produces a single product. Last year, Krepps manufactured 26,160 units and sold 20,900 units. Production costs for the year were as follows: Direct materials $ 188,352 Direct labor $ 112,488 Variable manufacturing overhead $ 224,976 Fixed manufacturing overhead $ 470,880 Sales totaled $971,850 for the year, variable selling and administrative expenses totaled $108,680, and fixed selling and administrative expenses totaled $190,968. There was no beginning inventory. Assume that direct labor is a variable cost. Under variable costing, the company's net operating income for the year would be:

Answer 1

Answer:

The company's net operating income would be $337,354

Explanation:

Net operating income calculation is done to check how much of the income is generated by the company's investment. It can be taken out by subtracting all the expenses ( variable in this case, because net income is to be taken out as per variable costing ) from all the revenues generated by the company.

REVENUES OF THE COMPANY = $971,850

EXPENSES= direct labor ( given in the question as variable cost )

                                               +

                     variable manufacturing overhead

                                               +

                                  direct material

                                                +

                     variable selling and administrative expenses

                                                +

 = $112,488 + $224,976 + $188,352 + $108,680

= $634,496

So net operating income = revenues - expenses

= $971,850 - $634,496

= $337,354