Shamrock Inc. plans to sell 3,000 Irish sweaters for $200 each in the coming year. Product costs include:Direct materials per sweater$ 40Direct labor per sweater10Variable overhead per sweater15Total fixed factory overhead20,000Variable selling expenses are $5 per sweater and fixed selling and administrative expenses total $12,000. Required:A.) Calculate the total variable cost per unit. B.) Calculate the total fixed expenses for the year. C.) Prepare a contribution margin income statement for Shamrock Inc. for the coming year.

Instructions are below.

Explanation:

Giving the following information:

Shamrock Inc. plans to sell 3,000 Irish sweaters for $200 each in the coming year.

Product costs include:

Direct materials per sweater = $40

Direct labor per sweater = $10

Variable overhead per sweater = $15

Total fixed factory overhead = $20,000

Variable selling expenses are $5 per sweater

Fixed selling and administrative expenses total $12,000.

Under the variable costing method, the unitary production cost is calculated using the direct labor, direct material, and variable allocated overhead.

In this case we are asked to calculate the total variable cost, we will include the administrative expense:

Unitary variable cost = 40 + 10 + 15 + 5 = $70

Total fixed costs = fixed overhead + fixed selling and administrative expense

Total fixed cost = 20,000 + 12,000 = $32,000

Income statement:

Sales = 3,000*200 = 600,000

Variable cost = 3,000*70 = (210,000)

Contribution margin = 390,000

Total fixed cost = (32,000)

Net operating income = 358,000