3) Brax Inc. planned to produce and actually manufactured 300,000 units of its single product in its first year of operations. Variable manufacturing costs were $25 per unit of product. Planned and actual fixed manufacturing costs were $900,000, and the selling and administrative costs totaled $500,000. Brax sold 180,000 units of product at a selling price of $50 per unit.
Brax’s operating income using variable costing is:
Calculate the total variable costs:
Total Variable Manufacturing Costs = Units Sold × Variable Cost per Unit
Total Variable Manufacturing Costs = 180,000 × $25 = $4,500,000
Calculate the total revenue:
Total Revenue = Units Sold × Selling Price per Unit
Total Revenue =180,000 × $50 = $9,000,000
Calculate the contribution margin:
Contribution Margin = Total Revenue − Total Variable Manufacturing Costs
Contribution Margin = $9,000,000 − $4,500,000 = $4,500,000
Subtract the fixed costs:
Operating Income = Contribution Margin −Fixed Manufacturing Costs − Selling and Administrative Costs
Operating Income = $4,500,000 − $900,000 − $500,000 = $3,100,000
Calculate the total variable costs:
Total Variable Manufacturing Costs = Units Sold × Variable Cost per Unit
Total Variable Manufacturing Costs = 180,000 × $25 = $4,500,000
Calculate the total revenue:
Total Revenue = Units Sold × Selling Price per Unit
Total Revenue =180,000 × $50 = $9,000,000
Calculate the contribution margin:
Contribution Margin = Total Revenue − Total Variable Manufacturing Costs
Contribution Margin = $9,000,000 − $4,500,000 = $4,500,000
Subtract the fixed costs:
Operating Income = Contribution Margin −Fixed Manufacturing Costs − Selling and Administrative Costs
Operating Income = $4,500,000 − $900,000 − $500,000 = $3,100,000