Question

A business operated at 100% of capacity during its first month, with the following results: Sales (90 units) $90,000 Production costs (100 units): Direct materials $40,000 Direct labor 20,000 Variable factory overhead 2,000 Fixed factory overhead 7,000 69,000 Operating expenses: Variable operating expenses $ 8,000 Fixed operating expenses 1,000 9,000 ​ What is the amount of the contribution margin that would be reported on the variable costing income statement?

Answer 1

The contribution margin on the variable costing income statement is $20,000, calculated by subtracting the total variable costs ($70,000) from the sales revenue ($90,000).

Step-by-step explanation:

To calculate the contribution margin on a variable costing income statement, we need to subtract the variable costs from the sales revenue. In this case, the student has provided the following numbers for a business operating at full capacity:

• Sales (90 units): $90,000
• Direct Materials: $40,000
• Direct Labor: $20,000
• Variable Factory Overhead: $2,000
• Variable Operating Expenses: $8,000

The sum of variable costs (Direct Materials, Direct Labor, Variable Factory Overhead, and Variable Operating Expenses) is $40,000 + $20,000 + $2,000 + $8,000 = $70,000.

We subtract this total variable cost from the sales revenue to determine the contribution margin:

$90,000 (Sales) - $70,000 (Variable Costs) = $20,000 (Contribution Margin).

Therefore, the contribution margin that would be reported on the variable costing income statement is $20,000.

Answer 2

Answer: Contribution Margin = $20,000

Step-by-step explanation:

Given that,

Sales (90 units) = $90,000

Direct materials cost = $40,000

Direct labor cost = 20,000

Variable factory overhead = 2,000

Fixed factory overhead = 7,000 and 69,000

Variable operating expenses = $8,000

Fixed operating expenses = 1,000 and 9,000

Therefore,

Contribution Margin = Sales - Variable cost of goods sold

= 90000 - (Direct materials cost + Direct labor cost + Variable factory overhead + Variable operating expenses)

= 90000 - $40,000 - 20,000 - 2,000 - 8,000

= $20,000

∴ Contribution Margin = $20,000