Unit fixed manufacturing overhead = $97,200 ÷ 3,600 = $27

Unit product cost = Direct materials + Direct labor + Variable manufacturing overhead +
Fixed manufacturing overhead = $13 + $59 + $4 + $27 = $103

75. What is the net operating income for the month under variable costing?
A) $3,800
B) $24,400
C) $9,200
D) $8,100

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
LO: 2 Level: Medium

Solution:

Sales revenue ($129 × 3,800) ................................ $490,200

Variable costs:
Variable cost of goods sold ($76 × 3,800) .......... $288,800
Variable selling and administrative ($8 ×
3,800) .............................................................. 30,400 319,200
Contribution margin ............................................... 171,000
Fixed costs:
Fixed manufacturing overhead ........................... $ 97,200
Fixed selling and administrative ......................... 64,600 161,800
Net operating income ............................................. $ 9,200
 76. What is the net operating income for the month under absorption costing?
A) $8,100
B) $9,200
C) $3,800
D) $24,400

Ans: C AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Reporting
LO: 2 Level: Medium

Solution:

Sales revenue ($129 × 3,800) ................................ $490,200

Cost of goods sold ($103 × 3,800) ........................ 391,400
Gross margin ......................................................... 98,800
Selling and administrative expenses costs:
Variable selling and administrative ($8 ×
3,800) .............................................................. $30,400
Fixed selling and administrative ........................ 64,600 95,000
Net operating income ............................................ $ 3,800

Use the following to answer questions 77-79:

Beach Corporation, which produces a single product, budgeted the following costs for its first
year of operations. These costs are based on a budgeted volume of 30,000 towels produced and
sold:

Direct materials .......................................... $96,000

Direct labor ................................................ $48,000
Variable manufacturing overhead .............. $72,000
Fixed manufacturing overhead................... $60,000
Variable selling and administrative ........... $12,000
Fixed selling and administrative ................ $36,000

During the first year of operations, Beach Towel actually produced 30,000 towels but only sold
24,000 towels. Actual costs did not fluctuate from the cost behavior patterns described above.
The 24,000 towels were sold for $16 per towel. Assume that direct labor is a variable cost.