Question

A business operated at 100% of capacity during its first month and incurred the following costs: Production costs (18,200 units): Direct materials $180,100 Direct labor 238,100 Variable factory overhead 261,800 Fixed factory overhead 97,900 $777,900 Operating expenses: Variable operating expenses $126,500 Fixed operating expenses 49,900 176,400 If 1,900 units remain unsold at the end of the month and sales total $1,141,000 for the month, what would be the amount of income from operations reported on the variable costing income statement? a.$257,732 b.$99,625 c.$70,989 d.$81,209

Answer 1

Option A,$257,732 is correct

Step-by-step explanation:

The computation of income from operations requires that the operating expenses(variable operating expenses and fixed operating expenses) be deducted in the current period as against charging a portion to closing inventory as it is obtainable under the absorption costing method:

Direct materials $180,100

Direct labor $238,100

Variable factory overhead $261,800

Total prime costs $680,000

Less closing stock(1900*$680,000/18200) ($70,989)

Costs of good sold $609,011

add:operating expenses:

variable operating expenses $126,500

Fixed operating expenses $49,900

Fixed factory overhead $97,900

Total expenses $883,311

income from operations=sales-total expenses

=$1,141,000-$883,311=$257,689

The $257,689 is closest to option A,$257,732 the difference could be due to rounding error