Question

6) Mexico Company has the following data about its only product:

Revenue $800,000

Direct materials used $200,000

Direct labor 80,000

Indirect manufacturing—fixed 100,000

Selling and administrative—fixed 150,000

Indirect manufacturing—variable 20,000

Selling and administrative—variable 60,000

Mexico Company uses the contribution approach. What is the contribution margin? calculate the operating income using contribution and absorption methods

A) $390,000

B) $350,000

C) $440,000

D) $500,000

Answer 1

Correct answer-----------(C) $440,000

Working and part 2

Contribution margin Income statement
Sales		$      800,000.00
Less: Variable costs
Direct material used	$     200,000.00
Direct labor	$       80,000.00
Indirect manufacturing—variable	$       20,000.00
Selling and administrative—variable	$       60,000.00
Total Variable cost		$      360,000.00
Contribution margin		$      440,000.00
Less: Fixed Costs
Fixed selling and administrative expenses'	$     150,000.00
Fixed Indirect manufacturing	$     100,000.00
Total Fixed Costs		$      250,000.00
Net Income		$      190,000.00

.

Absorption costing Income Statement
Sales		$    800,000.00
Cost of goods sold		$    400,000.00
Gross margin		$    400,000.00
Total selling and administrative expenses		$    210,000.00
Net operating income		$      190,000.00