Asked by Ashley Minaya on Apr 26, 2024
Verified
Under variable costing, what is McCoy's net operating income for its first year?
A) $266,000
B) $741,000
C) $1,261,600
D) $2,173,600
Variable Costing
An accounting method that includes only variable costs - costs that change with production levels - in product cost calculations.
Net Operating Income
It refers to the profit generated from a company's ordinary, core business operations after subtracting operating expenses from operating revenues.
First Year
The initial year of operation, production, or accounting period.
- Comprehend the principle of net operating income using absorption and variable costing approaches.
- Distinguish the financial results of absorption costing from those of variable costing across different situations.
Verified Answer
TC
Tyler CerioneApr 27, 2024
Final Answer :
B
Explanation :
Using variable costing, the net operating income can be calculated as follows:
Revenue:
- 40,000 units x $85 = $3,400,000
Variable expenses:
- 40,000 units x $35 = $1,400,000
- 40,000 units x $20 = $800,000
- 40,000 units x $5 = $200,000
- 40,000 units x $10 = $400,000
Total variable expenses = $2,800,000
Contribution margin = $3,400,000 - $2,800,000 = $600,000
Fixed expenses:
- $200,000 + $1,800,000 + $300,000 = $2,300,000
Net operating income = $600,000 - $2,300,000 = ($1,700,000)
Therefore, the answer is B. ($741,000).
Revenue:
- 40,000 units x $85 = $3,400,000
Variable expenses:
- 40,000 units x $35 = $1,400,000
- 40,000 units x $20 = $800,000
- 40,000 units x $5 = $200,000
- 40,000 units x $10 = $400,000
Total variable expenses = $2,800,000
Contribution margin = $3,400,000 - $2,800,000 = $600,000
Fixed expenses:
- $200,000 + $1,800,000 + $300,000 = $2,300,000
Net operating income = $600,000 - $2,300,000 = ($1,700,000)
Therefore, the answer is B. ($741,000).
Explanation : 
Learning Objectives
- Comprehend the principle of net operating income using absorption and variable costing approaches.
- Distinguish the financial results of absorption costing from those of variable costing across different situations.