Question

Selling price $220 per unit

Variable production costs $90 per unit produced
Variable selling and admin. expenses $25 per unit sold
Fixed production costs $600,000
Fixed selling and admin. expenses $400,000
Units produced 12,000 units
Units sold 11,500 units

There were no beginning inventories.

Required:
Compute Arrow's operating income for the month of May using the variable-costing method.

Answer 1

Net operating income= $207,500

Step-by-step explanation:

The variable costing method incorporates all variable production costs (direct material, direct labor, and variable overhead).

First, we will determine the total unitary variable overhead:

total unitary variable overhead= 90 + 25= $115

Now, we can calculate the total contribution margin:

Total CM= 11,500*(220 - 115)

Total CM= $1,207,500

Finally, the net operating income:

Net operating income= 1,207,500 - 600,000 - 400,000

Net operating income= $207,500