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Nielson Corp. sells its product for $6,600 per unit. Variable costs per unit are: manufacturing, $3,600, and selling and administrative, $75. Fixed costs are: $18,000 manufacturing overhead, and $24,000 selling and administrative. There was no beginning inventory at 1/1/15. Production was 20 units per year in 2018-2020. Sales were 20 units in 2018, 16 units in 2019, and 24 units in 2020.
-Income under variable costing for 2019 is
A) $4,800.
B) $8,400.
C) $9,600.
D) $13,200.

Question

Use the following information for questions 
Nielson Corp. sells its product for $6,600 per unit. Variable costs per unit are: manufacturing, $3,600, and selling and administrative, $75. Fixed costs are: $18,000 manufacturing overhead, and $24,000 selling and administrative. There was no beginning inventory at 1/1/15. Production was 20 units per year in 2018-2020. Sales were 20 units in 2018, 16 units in 2019, and 24 units in 2020.
-Income under variable costing for 2019 is
A) $4,800.
B) $8,400.
C) $9,600.
D) $13,200.

Quizplus · Accepted Answer

Variable costs per unit = $3,600 + $75 = $3,675
Contribution Margin per unit = Selling Price per unit - Variable Cost per unit = $6,600 - $3,675 = $2,925
Contribution Margin Ratio = Contribution Margin per unit / Selling Price per unit = $2,925 / $6,600 = 0.443182
Under variable costing, fixed manufacturing overhead and fixed selling and administrative expenses are not included in the cost of goods sold but are expensed in the period incurred. Therefore, the only expense included in the cost of goods sold is the variable cost of manufacturing. 
Total variable cost of manufacturing for 2019 = 16 units x $3,600 = $57,600
Total variable cost of goods sold for 2019 = 16 units x $3,675 = $58,800 
Total contribution margin for 2019 = 16 units x $2,925 = $46,800
Total fixed manufacturing overhead for 2019 = $18,000 
Total fixed selling and administrative expenses for 2019 = $24,000
Net income under variable costing for 2019 = Total contribution margin - Total fixed manufacturing overhead - Total fixed selling and administrative expenses = $46,800 - $18,000 - $24,000 = $4,800

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