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Chapter 21: Q4SE (page 1168)

Calculating contribution margin and operating income, variable costing

Calculate the contribution margin and operating income for June using variable costing.

Use the following information for Short Exercises S21-4 and S21-5.

Dracut Company reports the following information for June:

Net Sales Revenue $ 755,000 Variable Cost of Goods Sold 240,000 Fixed Cost of Goods Sold 198,000 Variable Selling and Administrative Costs 168,000 Fixed Selling and Administrative Costs 79,000

Short Answer

Expert verified

Answer

Dracut Company鈥檚 gross profit is $347,000 and operating income is $70,000.

Step by step solution

01

Calculation of contribution margin using variable costing

Particulars

Amount

Net sales revenue

$755,000

Less: Variable costs

Variable cost of goods sold

$240,000

Variable selling and administrative costs

$168,000

Contribution margin

$347,000

02

Statement showing operating income

Particulars

Amount

Net sales revenue

$755,000

Less: Variable costs

Variable cost of goods sold

$240,000

Variable selling and administrative costs

$168,000

Contribution margin

$347,000

Less: Fixed costs ($198,000+$79,000)

$277,000

Operating Income

$70,000

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Most popular questions from this chapter

Explain how increasing production can increase gross profit when using absorption costing.

Preparing variable and absorption costing income statements Linda鈥檚 Foods produces frozen meals that it sells for \(7 each. The company computes a new monthly fixed manufacturing overhead allocation rate based on the planned number of meals to be produced that month. Assume all costs and production levels are exactly as planned. The following data are from Linda鈥檚 Foods鈥檚 first month in business:

January 2018

Units produced and sold:

Sales 1,000 meals

Production 1,200 meals

Variable manufacturing cost per meal \) 3

Sales commission cost per meal 1

Total fixed manufacturing overhead 660

Total fixed selling and administrative costs 500

Requirements:

  1. Compute the product cost per meal produced under absorption costing and under variable costing.
  2. Prepare income statements for January 2018 using: a. absorption costing. b. variable costing.
  3. Is operating income higher under absorption costing or variable costing in January?

Analyzing profitability analysis, service company Burlington Internet Services is an Internet service provider for commercial and residential customers. The company provided the following data for its two types of customers for the month of August:

For each type of customer, determine both the contribution margin per customer and the contribution margin ratio. Round to two decimal places.

Which type of service is more profitable?

In the long run, all costs are controllable. Is this statement true? Why or why not?

What are the two components that can affect contribution margin? Why is it important to investigate both?
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