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    Ths post addresses costs and profit for Peggy's Pillows.

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    Peggy's Pillows produces and sells a decorative pillow for $75.00 per unit. In the first month of operation, 2,000 units were produced and 1,750 units were sold. Actual fixed manufacturing costs are the same as the amount budgeted for the month. Other information for the month includes:
    Variable manufacturing costs = $20.00 per unit
    Variable marketing costs = $3.00 per unit
    Fixed manufacturing costs = $7.00 per unit
    Administrative expenses, all fixed = $15.00 per unit
    Ending inventories:
    Raw Materials = 0
    WIP = 0
    Ending Finished Goods = 250 units

    8. What is the cost of goods sold using variable costing?

    a $35,000
    b $40,000
    c $47,250
    d $54,000

    9. What is the contribution margin?

    a $96,250
    b $91,000
    c $104,000
    d $110,000

    10. What is the operating income under variable costing?

    a $52,500
    b $78,750
    c $65,750
    d $47,000

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    Solution Summary

    This solution provides the correct answers and calculations for each of the questions listed in the Peggy's Pillows exercise.