calculate operating income under variable costing
Revenuesvariable cogsvariable marketing costs Contribution margin Fixed manufacturing costsFixed marketing costsOperating income
Operating income under variable costing is calculated by subtracting total variable expenses from total revenue.
The formula for calculating operating income under variable costing is:
Operating income = Total revenue – Total variable expenses
Total revenue can be obtained by multiplying the unit selling price with the number of units sold. In case of multiple products, revenue for each product can be calculated separately and then added up.
Total variable expenses include all the costs that vary with the level of production or sales. These include direct materials, direct labor, variable manufacturing overhead, variable selling and administrative expenses.
Once the total revenue and total variable expenses are known, they can be substituted in the formula to calculate the operating income under variable costing.
It is important to note that under variable costing, fixed manufacturing overhead costs are not included in the calculation of operating income. These costs are treated as period expenses and are deducted from the total amount of income earned to arrive at the net income.
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