Felde Company builds custom fishing lures for sporting goods stores. In its first year of...

Question:

Felde Company builds custom fishing lures for sporting goods stores. In its first year of operations, 2014, the company incurred the following costs.

Variable Costs per Unit
Direct materials $8.25
Direct labor $2.70
Variable manufacturing overhead $6.33
Variable selling and administrative expenses $4.29
Fixed Costs per Year
Fixed manufacturing overhead $258,944
Fixed selling and administrative expenses $264,110

Felde Company sells the fishing lures for $27.50. During 2014, the company sold 81,200 lures and produced 95,200 lures.

Prepare a variable costing income statement for 2014.

Variable Costing Income statement:

Variable costing income statement deducts all the variable expenses from the revenue first which gives a contribution margin figure and then the fixed expenses are deducted from the contribution margin to arrive at net profit. This statement helps to understand the cost that differs with the production quantity and the cost which does not change with the production.

Answer and Explanation: 1

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Let us first calculate the manufacturing cost per unit as below:

Manufacturing cost per unit = Direct materials + Direct labor + Variable...

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Variable Costing: Method, Formula & Advantages

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Chapter 13 / Lesson 5
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Variable costing assigns the cost of materials and supplies as needed in the production process. Learn about this method in accounting, understand the formula for determining variable cost, and explore its advantages and some examples.


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