Oak Mart, a producer of solid oak tables, reports the following data from its second year of business. Sales price per unit $ 320 per unit Units produced this year 115,000 units Units sold this year 118,000 units Units in beginning-year inventory 3,000 units Beginning inventory costs Variable (3,000 units × $135) $ 405,000 Fixed (3,000 units × $80) 240,000 Total $ 645,000 Manufacturing costs this year Direct materials $ 40 per unit Direct labor $ 62 per unit Overhead costs this year Variable overhead $ 3,220,000 Fixed overhead $ 7,400,000 Selling and adminstrative costs this year Variable $ 1,416,000 Fixed 4,600,000 6.value: 5.55 pointsRequired information 1. Prepare the current year income statement for the company using variable costing.

Sales ( 118,000 × $ 320)                                                37,760,000

Less Cost of Goods Sold :                                           (14,909,500)

Opening Stock (3,000 units × $135)                                  40,500

Add Cost of Goods Manufactured

Direct materials ($ 40 × 118,000 units)                         4,720,000

Direct labor ($ 62  × 118,000 units)                                7,316,000

Variable overhead                                                        3,220,000

Less Closing Stock (3,000 × ($ 40+$ 62+$27))            (387,000)

Contribution                                                                   22,850,500

Less Operating Expenses :

Fixed overhead                                                           (7,400,000)

Selling and administrative costs :

Variable                                                                        ( 1,416,000)

Fixed                                                                            (4,600,000)

Net Income                                                                   9,434,500

Explanation:

Variable Product Cost = Direct Materials + Direct Labor + Variable Overheads

Variable Costing - Period Cost = Fixed Overheads + All Non- Manufacturing Expenses

total sales $320 x 118,000 units sold =                                $37,760,000

variable COGS                                                                       ($15,355,000)

variable beginning inventory =                        ($405,000)

variable direct costs ($40 + $62) x 115,000 = ($11,730,000)

variable overhead =                                          ($3,220,000)                        

manufacturing margin                                                            $22,405,000

variable administrative and selling costs                               ($1,416,000)    

contribution margin                                                                $20,989,000

fixed costs                                                                              ($12,000,000)

fixed overhead =                                             ($7,400,000)

administrative and selling =                           ($4,600,000)                            

net income                                                                                $8,989,000

When you are calculating variable costing, COGS only includes variable costs. All fixed costs are included as period costs at the end. Fixed costs are not carried forward either.

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