Last year, Walsh Company manufactured 25,000 units and sold 22,000 units. Production costs were as follows:
$\begin{array}{|l|r|}
\hline \text { Direct materials } & \$ 100,000 \
\hline \text { Direct labour } & 75,000 \
\hline \text { Variable manufacturing overhead } & 50,000 \
\hline \text { Fixed manufacturing overhead } & 75,000 \
\hline
\end{array}$Total sales were $440,000, total variable selling and administrative expenses were $110,000, and total fixed selling and administrative expenses were $45,000. There was no beginning inventory. Assume that direct labour is a variable cost.

-What was the operating income under variable costing?
A) $2,000.
B) $9,000.
C) $12,000.
D) $21,000.

Question

Last year, Walsh Company manufactured 25,000 units and sold 22,000 units. Production costs were as follows:
$\begin{array}{|l|r|}
\hline \text { Direct materials } & \$ 100,000 \
\hline \text { Direct labour } & 75,000 \
\hline \text { Variable manufacturing overhead } & 50,000 \
\hline \text { Fixed manufacturing overhead } & 75,000 \
\hline
\end{array}$Total sales were $440,000, total variable selling and administrative expenses were $110,000, and total fixed selling and administrative expenses were $45,000. There was no beginning inventory. Assume that direct labour is a variable cost.

-What was the operating income under variable costing?
A) $2,000.
B) $9,000.
C) $12,000.
D) $21,000.

Quizplus · Accepted Answer

Under variable costing, only variable costs are included in product costs. The operating income is calculated as follows: Sales ($440,000) - Variable Costs (Direct materials $88,000 + Direct labour $66,000 + Variable manufacturing overhead $44,000 + Variable selling and administrative expenses $110,000) - Fixed Costs (Fixed manufacturing overhead $75,000 + Fixed selling and administrative expenses $45,000) = $12,000.

Last Year, Walsh Company Manufactured 25,000 Units and Sold 22,000