Dapple Company incurred the following costs while producing 480 units: direct materials, $ 13 per unit; direct labor, $ 26 per unit; variable manufacturing overhead, $ 16 per unit; total fixed manufacturing overhead costs, $ 7 comma 680; variable selling and administrative costs, $ 2 per unit; total fixed selling and administrative costs, $ 4 comma 320. There are no beginning inventories. What is the operating income using variable costing if 430 units are sold for $ 160 each?

Operating Income       $32290  

Explanation:

The difference between the variable and absorption costing is that the fixed costs are treated as period costs in variable costing and as product costs in absorptioon costing. In variable costing all variable costs are treated as product costs.

Dapple Company

Income Statement

Variable Costing

Sales 430 units* $ 160                                                    $ 68,800

Less

Variable Cost OF Goods Sold                                          ( 23650)  

Direct materials, $ 13 per unit * 430              5590

Direct labor, $ 26 per unit *430                    11180

Variable Manufacturing

Overhead, $ 16 per unit *430                         6880            

Less

Variable selling and

Administrative costs, $ 2 per unit *430                                 (860)    

Contribution Margin                                                              44290

Less

Total Fixed Manufacturing overhead costs, $ 7, 680;

Total Fixed selling and administrative costs, $ 4,320                        

Operating Income                                                               $32290    

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