Dillon Company incurred the following costs while producing 450 units: direct materials, $9 per unit; direct labor, $23 per unit; variable manufacturing overhead, 12 per unit; total fixed manufacturing overhead costs, $6,750; variable selling and administrative costs, $10 per unit; total fixed selling and administrative costs, $4.050. There are no beginning inventories. What is the operating income using variable costing if 350 units are sold for $200 each? A. $43,800 B. $40,300 C. $51,100
Dillon Company incurred the following costs while producing 450 units: direct materials, $9 per unit; direct labor, $23 per unit; variable manufacturing overhead, 12 per unit; total fixed
What is the operating income using variable costing if 350 units are sold for $200 each?
A. $43,800
B. $40,300
C. $51,100
D. $41,800
Solution:
Introduction:
In Variable costing method, only variable costs are included as product costs such as direct materials, direct labor and variable manufacturing overhead. Other product costs are the fixed manufacturing overhead which are considered as period costs when will be expensed in the period incurred. Variable costing is used internally for managerial decision making since generally accepted accounting principles prescribes only the use of variable costing allows management to clearly determine costs from changes in output and it is used in cost volume profit analysis effectively.
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