The results of operations for the Preston Manufacturing Company for the fourth quarter of 2014 were as follows: Sales $550,000 Less variable cost of sales 330,000 Contribution margin 220,000 Less fixed production costs $120,000 Less fixed selling and administrative expenses 55,000 175,000 Income before taxes 45,000 Less taxes on income 18,000 Net income $27,000 Note: Preston Manufacturing uses the variable costing method. Thus, only variable production costs are included in inventory and cost of goods sold. Fixed production costs are charged to expense in the period incurred.

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