A business operated at 100% of capacity during its first month, with the following results: Sales (90 units) $90,000 Production costs (100 units) : Direct materials $40,000 Direct labor 20,000 Variable factory overhead 2,000 Fixed factory overhead 7,000 69,000 Operating expenses: Variable operating expenses $ 8,000 Fixed operating expenses 1,000 9,000 What is the amount of the contribution margin that would be reported on the variable costing income statement?

Question

Business

Denise Greene

19 August, 15:00

A business operated at 100% of capacity during its first month, with the following results: Sales (90 units) $90,000 Production costs (100 units) : Direct materials $40,000 Direct labor 20,000 Variable factory overhead 2,000 Fixed factory overhead 7,000 69,000 Operating expenses: Variable operating expenses $ 8,000 Fixed operating expenses 1,000 9,000 What is the amount of the contribution margin that would be reported on the variable costing income statement?

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Karla Crosby · Answer 1

Answer: Contribution Margin = $20,000

Explanation:

Given that,

Sales (90 units) = $90,000

Direct materials cost = $40,000

Direct labor cost = 20,000

Variable factory overhead = 2,000

Fixed factory overhead = 7,000 and 69,000

Variable operating expenses = $8,000

Fixed operating expenses = 1,000 and 9,000

Therefore,

Contribution Margin = Sales - Variable cost of goods sold

= 90000 - (Direct materials cost + Direct labor cost + Variable factory overhead + Variable operating expenses)

= 90000 - $40,000 - 20,000 - 2,000 - 8,000

= $20,000

∴ Contribution Margin = $20,000