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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’s 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

Analyzing profitability Refer to Short Exercise S21-10. Which business segment provided the greatest total contribution margin? Which

business segment had the highest contribution margin ratio?

Camden Company has divided its business into segments based on sales territories: East Coast, Midland, and West Coast. Following are financial data for 2018:

East Coast

Midland

West Coast

Units sold

71

69

53

Sales price per unit

\(10,300

\)13,600

$12,000

Variable cost per unit

6,283

7,072

7,080

Analyzing profitability

Camden Company has divided its business into segments based on sales territories: East Coast, Midland, and West Coast. Following are financial data for 2018:

East Coast

Midland

West Coast

Units sold

71

69

53

Sales price per unit

\(10,300

\)13,600

\(12,000

Variable cost per unit

6,283

7,072

7,080

Prepare an income statement for Camden Company for 2018 using the contribution margin format assuming total fixed costs for the company were \)435,000. Include columns for each business segment and a column for the total company.

When units produced equal units sold, how does operating income differ between variable costing and absorption costing?

Using variable costing, service company Henry’s Helpers provides locksmith services. One type of service call is to evaluate private residences for security concerns and make recommendations for a safety plan. Use the data below to determine the company’s total contribution margin, contribution margin per service call, and contribution margin ratio when 220 service calls are made in the month of June.

Service Revenue $ 170 per service call

Variable Costs 68 per service call

Fixed Costs 21,040 per month

Why is it appropriate to use variable costing when planning production in the short term?
See all solutions

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