Question

Robusta Coffee Importers produced 7200 units in October and sold 7000 units in October at a sales price of $45 per unit. The Direct materials are $10 per unit, the Direct Labor is $2.50 per unit and the Variable MOH is $7.50 per unit. The monthly fixed Manufacturing Overhead costs are $140,000 and the monthly fixed Selling \& Administrative costs are $20,000. Using the contribution margin income statement format, what is the operating income earned in October?

a. $175,000
b. $15,000
c. $35,000
d. $155,000

Answer 1

To find the operating income for Robusta Coffee Importers, calculate the total sales, subtract the total variable costs to find the contribution margin, and then subtract the total fixed costs. The operating income for October is $15,000. The correct option is b. $15,000.

Step-by-step explanation:

The question given revolves around the calculation of operating income for Robusta Coffee Importers using the contribution margin income statement format for October. First, we calculate the contribution margin by subtracting all the variable costs from the sales. Variable costs include direct materials, direct labor, and variable manufacturing overhead (MOH) per unit.

Total Sales = 7000 units * $45/unit = $315,000
Total Variable Costs = ($10 + $2.50 + $7.50) * 7000 units = $140,000
Contribution Margin = $315,000 minus $140,000 = $175,000
Total Fixed Costs = $140,000 (Manufacturing) + $20,000 (Selling & Admin) = $160,000
Operating Income = Contribution Margin minus Total Fixed Costs = $175,000 minus $160,000 = $15,000

So, the operating income earned in October is $15,000