Souffront Corporation manufactures and sells one product. In the company’s first year of operations, the variable cost consisted solely of direct materials of $106 per unit. The annual fixed costs were $1,547,400 of direct labor cost, $4,126,400 of fixed manufacturing overhead expense, and $1,803,100 of fixed selling and administrative expense.

Souffront Corporation manufactures and sells one product. In the company’s first year of operations, the variable cost consisted solely of direct materials of $106 per unit. The annual fixed costs were $1,547,400 of direct labor cost, $4,126,400 of fixed manufacturing overhead expense, and $1,803,100 of fixed selling and administrative expense. The company does not have any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, the company produced 64,500 units and sold 60,200 units. The company’s only product is sold for $275 per unit. The net operating income for the year under super-variable costing is:

Multiple Choice

• $2,696,900

  Correct
• $4,244,300
• $6,823,300
• $3,195,360

Explanation

Sales ($275 per unit × 60,200 units)                   $    16,555,000   
Variable cost of goods sold ($106 per unit × 60,200 units)                        6,381,200   
Contribution margin                        10,173,800   
Fixed expenses:                            
Direct labor    $    1,547,400                  
Fixed manufacturing costs         4,126,400                  
Fixed selling and administrative expense         1,803,100              7,476,900   
Net operating income                   $    2,696,900   


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