Butteco Corporation has provided the following cost data for

Butteco Corporation has provided the following cost data for last year when 100,000 units were produced and sold: Direct materials $200,000

Direct labor 100,000

Manufacturing overhead 200,000

Selling and administrative expense 150,000

All costs are variable except for $100,000 of manufacturing overhead and $80,000 of selling and administrative expense. There are no beginning or ending inventories. Selling price is $10 per unit. Compute net operating income from producing and selling 110,000 units.

Solution

Sales (110,000*$10) $ 1,100,000 Less: Expenses Direct material ($200,000/100,000*110,000) $ 220,000 Direct labor ($100,000/100,000*110,000) $ 110,000 Variable manufacturing overhead (($200,000-$100,000)/100,000*110,000) $ 110,000 Fixed manufacturing overhead $ 100,000 Variable selling and administrative expense (($150,000-$80,000)/100,000*110,000) $    77,000 Fixed selling and administrative expenses $    80,000 Total expenses $     697,000 Net operating income $     403,000