{"id":183499,"date":"2025-01-16T13:50:55","date_gmt":"2025-01-16T13:50:55","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=183499"},"modified":"2025-01-16T13:50:56","modified_gmt":"2025-01-16T13:50:56","slug":"oak-mart-company-variable-costing-income-statement-manufacturing","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/01\/16\/oak-mart-company-variable-costing-income-statement-manufacturing\/","title":{"rendered":"OAK MART COMPANY Variable Costing Income Statement Manufacturing"},"content":{"rendered":"\n

Beginning inventory: OAK MART COMPANY Variable Costing Income Statement Manufacturing\u2026<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

The Correct Answer and Explanation is :<\/strong><\/mark><\/p>\n\n\n\n

A variable costing income statement is a financial report that categorizes costs based on their behavior\u2014variable or fixed\u2014to provide insights into a company’s contribution margin and profitability. This approach is particularly useful for internal decision-making, as it highlights how costs change with production levels.<\/p>\n\n\n\n

Structure of a Variable Costing Income Statement:<\/strong><\/p>\n\n\n\n

    \n
  1. Sales Revenue:<\/strong> Total income from goods or services sold.<\/li>\n\n\n\n
  2. Variable Costs:<\/strong> Costs that fluctuate with production volume, including:<\/li>\n<\/ol>\n\n\n\n
      \n
    • Variable Production Costs:<\/strong> Direct materials, direct labor, and variable manufacturing overhead.<\/li>\n\n\n\n
    • Variable Selling and Administrative Expenses:<\/strong> Costs like sales commissions and shipping expenses.<\/li>\n<\/ul>\n\n\n\n
        \n
      1. Contribution Margin:<\/strong> Calculated as Sales Revenue minus Total Variable Costs. This figure indicates the amount available to cover fixed costs and contribute to profit.<\/li>\n\n\n\n
      2. Fixed Costs:<\/strong> Costs that remain constant regardless of production levels, such as fixed manufacturing overhead and fixed selling and administrative expenses.<\/li>\n\n\n\n
      3. Net Operating Income:<\/strong> Determined by subtracting Total Fixed Costs from the Contribution Margin.<\/li>\n<\/ol>\n\n\n\n

        Example:<\/strong><\/p>\n\n\n\n

        Consider Oak Mart Company, a producer of solid oak tables. The company reports the following data for its second year of business:<\/p>\n\n\n\n

          \n
        • Sales Price per Unit:<\/strong> $320<\/li>\n\n\n\n
        • Units Produced:<\/strong> 115,000 units<\/li>\n\n\n\n
        • Units Sold:<\/strong> 118,000 units<\/li>\n\n\n\n
        • Units in Beginning Inventory:<\/strong> 3,000 units<\/li>\n\n\n\n
        • Manufacturing Costs:<\/strong><\/li>\n\n\n\n
        • Direct Materials: $4,200,000<\/li>\n\n\n\n
        • Direct Labor: $6,510,000<\/li>\n\n\n\n
        • Variable Overhead: $3,200,000<\/li>\n\n\n\n
        • Fixed Overhead: $7,400,000<\/li>\n\n\n\n
        • Selling and Administrative Costs:<\/strong><\/li>\n\n\n\n
        • Variable: $1,416,000<\/li>\n\n\n\n
        • Fixed: $4,600,000<\/li>\n<\/ul>\n\n\n\n

          Variable Costing Income Statement:<\/strong><\/p>\n\n\n\n

            \n
          1. Sales Revenue:<\/strong><\/li>\n<\/ol>\n\n\n\n
              \n
            • 118,000 units \u00d7 $320\/unit = $37,760,000<\/li>\n<\/ul>\n\n\n\n
                \n
              1. Variable Costs:<\/strong><\/li>\n<\/ol>\n\n\n\n
                  \n
                • Variable Production Costs:<\/strong>\n
                    \n
                  • Direct Materials: $4,200,000<\/li>\n\n\n\n
                  • Direct Labor: $6,510,000<\/li>\n\n\n\n
                  • Variable Overhead: $3,200,000<\/li>\n\n\n\n
                  • Total Variable Production Costs:<\/strong> $13,910,000<\/li>\n<\/ul>\n<\/li>\n\n\n\n
                  • Variable Selling and Administrative Expenses:<\/strong> $1,416,000<\/li>\n\n\n\n
                  • Total Variable Costs:<\/strong> $13,910,000 + $1,416,000 = $15,326,000<\/li>\n<\/ul>\n\n\n\n
                      \n
                    1. Contribution Margin:<\/strong><\/li>\n<\/ol>\n\n\n\n
                        \n
                      • $37,760,000 (Sales Revenue) \u2013 $15,326,000 (Total Variable Costs) = $22,434,000<\/li>\n<\/ul>\n\n\n\n
                          \n
                        1. Fixed Costs:<\/strong><\/li>\n<\/ol>\n\n\n\n
                            \n
                          • Fixed Manufacturing Overhead: $7,400,000<\/li>\n\n\n\n
                          • Fixed Selling and Administrative Expenses: $4,600,000<\/li>\n\n\n\n
                          • Total Fixed Costs:<\/strong> $7,400,000 + $4,600,000 = $12,000,000<\/li>\n<\/ul>\n\n\n\n
                              \n
                            1. Net Operating Income:<\/strong><\/li>\n<\/ol>\n\n\n\n
                                \n
                              • $22,434,000 (Contribution Margin) \u2013 $12,000,000 (Total Fixed Costs) = $10,434,000<\/li>\n<\/ul>\n\n\n\n

                                Explanation:<\/strong><\/p>\n\n\n\n

                                In this example, Oak Mart Company generated $37,760,000 in sales revenue by selling 118,000 units at $320 each. The variable costs, which include direct materials, direct labor, variable overhead, and variable selling and administrative expenses, totaled $15,326,000. Subtracting these variable costs from the sales revenue results in a contribution margin of $22,434,000. After accounting for fixed costs of $12,000,000, the company achieved a net operating income of $10,434,000.<\/p>\n\n\n\n

                                This income statement format is beneficial for internal management as it clearly distinguishes between variable and fixed costs, aiding in cost control and pricing decisions. It also facilitates break-even analysis and profitability assessments. However, it’s important to note that variable costing is not permitted for external financial reporting under Generally Accepted Accounting Principles (GAAP), which require absorption costing.<\/p>\n","protected":false},"excerpt":{"rendered":"

                                Beginning inventory: OAK MART COMPANY Variable Costing Income Statement Manufacturing\u2026 The Correct Answer and Explanation is : A variable costing income statement is a financial report that categorizes costs based on their behavior\u2014variable or fixed\u2014to provide insights into a company’s contribution margin and profitability. This approach is particularly useful for internal decision-making, as it highlights […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-183499","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/183499","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=183499"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/183499\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=183499"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=183499"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=183499"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}