Question

During its first year of operation Mazer Manufacturing Company produced 9,500 units of inventory and sold 2,550 units. Mazer incurred variable product cost of $2.50 per unit and $13,300 of fixed manufacturing overhead costs. The sales price of the products was $9.50 per unit. Determine the amount of net income Mazer would report if the company uses variable costing.

Answer 1

Step-by-step explanation:

To determine the amount of net income Mazer would report if the company uses variable costing, we need to calculate the variable cost per unit and the contribution margin per unit first:

Variable cost per unit = variable product cost per unit

= $2.50

Contribution margin per unit = sales price per unit - variable cost per unit

= $9.50 - $2.50

= $7.00

Using this information, we can calculate the total variable cost and total contribution margin for the units sold:

Total variable cost = variable cost per unit x units sold

= $2.50 x 2,550

= $6,375

Total contribution margin = contribution margin per unit x units sold

= $7.00 x 2,550

= $17,850

Next, we can calculate the total fixed manufacturing overhead cost incurred by Mazer during the first year of operation:

Total fixed manufacturing overhead cost = $13,300

Finally, we can calculate the net income using the variable costing method:

Net income = total contribution margin - total fixed manufacturing overhead cost

= $17,850 - $13,300

= $4,550