Question

During its first year of operation Salon Manufacturing Company sold 1,200 units of inventory. Salon incurred variable product cost of $6.50 per unit and $2,500 of fixed manufacturing overhead costs. The sales price of the products was $10.00 per unit. Salon uses variable costing. Based on this information Salon will report net income of

Answer 1

Net income is $1,700

Step-by-step explanation:

Sales revenue ($10*1200) $12000

Variable cost($6.5*1200) ($7800)

Contribution margin $4200

Fixed manufacturing overhead($2500)

Net income $1700

Using variable costing method implies that the fixed overhead cost is not charged to products instead expensed once it is incurred as a period costs rather than each item of inventory having its share of overhead cost as it is obtainable under absorption costing method