Question

A business operated at 100% of capacity during its first month and incurred the following costs: Production costs (18,200 units): Direct materials $180,100 Direct labor 238,100 Variable factory overhead 261,800 Fixed factory overhead 97,900 $777,900 Operating expenses: Variable operating expenses $126,500 Fixed operating expenses 49,900 176,400 If 1,900 units remain unsold at the end of the month and sales total $1,141,000 for the month, what would be the amount of income from operations reported on the variable costing income statement? a.$257,732 b.$99,625 c.$70,989 d.$81,209

Answer 1

Answer:

Option A,$257,732 is correct

Explanation:

The computation of income from operations requires that the operating expenses(variable operating expenses and fixed operating expenses) be deducted in the current period as against charging a portion to closing inventory as it is obtainable under the absorption costing method:

Direct materials                                            $180,100

Direct labor                                                   $238,100

Variable factory overhead                            $261,800

Total prime costs                                              $680,000  

Less closing stock(1900*$680,000/18200)    ($70,989)  

Costs of good sold                                            $609,011  

add:operating expenses:

variable operating expenses                            $126,500

Fixed operating expenses                                 $49,900

Fixed factory overhead                                       $97,900

Total expenses                                                     $883,311  

income from operations=sales-total expenses

                                        =$1,141,000-$883,311=$257,689

The $257,689 is closest to option A,$257,732 the difference could be due to rounding error