Gnat Company reported the following information about the production and sale of

ID: 2489294 • Letter: G

Question

Gnat Company reported the following information about the production and sale of its only product during the first month of operations:

Selling price per unit $300

Sales $480,000

Direct materials used $220,000

Direct labor $200,000

Variable factory overhead $60,000

Fixed factory overhead $80,000

Variable selling and administrative expenses $20,000

Fixed selling and administrative expenses $10,000 Ending inventory,

Direct Materials 0 Ending inventory, Work-in-process 0 Ending inventory,

Finished Goods 400 units

A) Under variable costing, the contribution margin is ________.

A) $20,000

B) $40,000

C)$76,000

D) $104,000

B) Under variable costing, the operating income or loss is ________.

A) $(6,000)

B) $(14,000)

C) $10,000

D) $41,000

Please help me with a detailed explanation. Thanks!

Explanation / Answer

Unit cost under variable costing

Direct materials 220,000/2000

110.00

Direct labor 200,000/2000

100.00

Variable factory overhead 60,000/2000

30.00

Total unit cost of product

240.00

(units produced = sold + ending inventory

=1600+400 = 2000 units

Variable costing

Sales (1600*300) 480,000

Less:Variable cost

Cost of goods sold(1600*240) -384,000

Variable selling expense - 20,000

Contribution margin 76,000

Less:fixed expense

Fixed manufacturing cost 80,000

Fixed selling cost 10,000 -90,000

Net loss (14,000)