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

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

Solution Summary

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