Anchovy, Inc., a producer of frozen pizzas, began operations this year. During this year, the company produced 16,000 cases of pizza and sold 15,000. At year-end, the company reported the following income statement using absorption costing:Sales (15,000 × $48)$720,000Cost of goods sold (15,000 × $19)285,000Gross margin$435,000Selling and administrative expenses 79,000Net income$356,000Production costs per case total $19, which consists of $15.50 in variable production costs and $3.50 in fixed production costs (based on the 16,000 units produced). Eight percent of total selling and administrative expenses are variable. Compute net income under variable costing.
What will be an ideal response?
Income under absorption costing = Income under variable costing + FOH in Ending inventory - FOH in Beginning inventory
$356,000 = Income under variable costing ($3.50 x 0 units) + ($3.50 × 1,000 units)
$352,500 = Income under variable costing
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