A business operated at 100% of capacity during its first month, with the following results: Sales (90 units) $90,000 Production costs (100 units) : Direct materials $40,000 Direct labor 20,000 Variable factory overhead 2,000 Fixed factory overhead 7,000 69,000 Operating expenses: Variable operating expenses $ 8,000 Fixed operating expenses 1,000 9,000 What is the amount of the contribution margin that would be reported on the variable costing income statement?

Answer: Contribution Margin = $20,000

Explanation:

Given that,

Sales (90 units) = $90,000

Direct materials cost = $40,000

Direct labor cost = 20,000

Variable factory overhead = 2,000

Fixed factory overhead = 7,000 and 69,000

Variable operating expenses = $8,000

Fixed operating expenses = 1,000 and 9,000

Therefore,

Contribution Margin = Sales - Variable cost of goods sold

= 90000 - (Direct materials cost + Direct labor cost + Variable factory overhead + Variable operating expenses)

= 90000 - $40,000 - 20,000 - 2,000 - 8,000

= $20,000

∴ Contribution Margin = $20,000