Jones Company incurred the following costs while producing 100 chairs: Units produced 100 chairs Direct materials $10 per unit Direct labor 15 per unit Variable manufacturing overhead 3 per unit Total fixed manufacturing overhead 2,000 Variable selling and administrative 4 per unit Fixed selling and administrative 3,000 What is operating income using variable costing if 90 units were sold for $150 each?

Operating Income under Variable Costing = $5,620

Explanation:

Jones Company

Variable costing income statement

For the month of June 30, 20YY

Sales (90 units × $150)                                                           $13,500

Less: Variable expenses

Direct materials (90 units × $10) =                             $900

Direct labor (90 units × $15) =                                  $1,350

Variable manufacturing overhead (90 units × $3) = $270                  

Total variable expenses                                                         ($2,520)  

Variable manufacturing margin                                            $10,980

Less: Variable selling and administrative (90×$4)                   $360

Contribution Margin                                                              $10,620

Less: Fixed Expenses

Manufacturing overhead                          $2,000

Selling and administrative                        $3,000

Total fixed expenses                                                           $(5,000)  

Net Operating Income =                                                     $5,620

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