Bethel, Inc. has collected the following data. (There are no beginning inventories.) Units produced 510 units Sales price $ 150 per unit Direct materials $ 16 per unit Direct labor $ 13 per unit Variable manufacturing overhead $ 10 per unit Fixed manufacturing overhead $ 19 comma 200 per year Variable selling and administrative costs $ 8 per unit Fixed selling and administrative costs $ 11 comma 800 per year What is the operating income using variable costing if 500 units are sold?

Operating income=$ 20,500

Explanation:

Under the variable costing system, units of production and inventory are valued using the variable cost per unit.

The variable cost per unit= direct material cost + direct labour cost + variable overhead

The operating income is calculated as follows:

Sales revenue - Cost of sales - Fixed cost

Variable cost per unit = (16+13+10+8)=47

Cost of sales = 47× 500 =23500

Fixed cost = 19,200+11800 =31,000

Sales revenue = ($150× 500) =75,000

Operating income = 75,000- 23,500- 31,000 = 20,500

The operating income using variable costing if 500 units are sold is $ 20,500

Explanation:

Variable Costing System treats all Variable Manufacturing Costs as Part of Product Cost.

Fixed Manufacturing Costs are not accumulated in the product costs calculations but are treated as an expense during the period in which production occurs together with Non-Manufacturing Costs

Variable costing if 500 units are sold

First determine the amount of closing inventory

Opening units                   0

Add Production              510

Available for Sale           510

Less Sold units              500

Closing units                    10

Costing Calculations

Sales ($ 150 × 500)                                                                     75,000

Less Cost of Sales

Opening Stock                                                          0

Direct materials ( $ 16 ×510 )                                 8,160

Direct labor (  $ 13 ×510 )                                       6,630

Variable manufacturing overhead ( $ 10 ×510)    5,100

Less Closing Stock ( $39 × 10)                              (390)           ( 19,500)

Contribution                                                                                 55,500

Less Expenses

Fixed Manufacturing Costs                                                        (19,200)

Variable selling and administrative costs ( $ 8 ×500)               (4,000)

Fixed selling and administrative costs                                       (11,800)

Net Income                                                                                   20,500

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